Question

  GreenCo Pty Ltd manufactures tractors to be used in large scale farming and agricultural activities. GreenCo enters into a contract with Plantation Pty Ltd (Plantation) for Plantation to supply GreenCo with various parts to use in manufacturing the tractors. Several months later, due to a downturn in the economy and the agribusiness sector, Plantation rescinded the contract and paid $50,000 to GreenCo to avoid any legal issues. Cancellation of the contract did not affect GreenCo’s business operating structure as GreenCo has numerous other different business activities.

a.          Does the $50,000 received from Silla form part of Defence’s ordinary business income? Justify your answer with reference to appropriate case law and legislation.

b.          Would your answer differ if GreenCo could not operate without the parts supplied by Plantation and if so, how?

Answer 1

Answer (a)

No, $50000 recieved from Silla doesn't form the part of Defence ordinary Buisness income because it is not a income earned by Green Co Pty Ltd from its ordinary course of Buiness. The income is recieved only to avoid any legal issues and complications. Hence it is not a revenue Income. It is not a regular income for buisness. The income arises only due to rescinded of the contract between both the parties.

Answer (B)

Yes, the answer differs if Green Co. Could not operate without the parts supplied by plantation because now Green Co. doesn't operate its Buiness which means that it loss it's revenue which the company will earn if parts were supplied. Hence the income is recieved as compensation against such loss. So we can treat it as ordinary Income which we will earn if such circumstances doesn't occur.