Question

With reference to relevant legislation and case law, determine if the following scenarios give rise to income for tax purposes:

a) John is a pensioner and swapping his surplus free range eggs valued at $150 (for the year) with his neighbour Alex for surplus vegetables grown in his home garden.

b) David is a builder and helping John at weekends to build his home, doing so on the basis that David can have John’s caravan towed trailer (which cost him $10,500 on 1 January 1997) when John move into his current home. Assume the value of the David’s work was $11,000 and the caravan had a market price of $12,000 when John handed it over on 1 January in the current income year.

Answer 1

Solution:

a) In this case John is swapping free range eggs valued at $150 with his neighbour Alex for surplus vegetables , we can say it is barter transaction, means there is no exchange of money , therefore no income is generated from tax point of view .

So no income is generated in this case for tax purpose.

b) In this David accepted a caravan against value of his services of $11,000 , so he should report the income of $11,000 from income tax point of view.

While John who has given up a caravan , which having market value of $12,000, which had cost him for $10,500, so John should report capital gain of ($12,000-$10,500) = $1,500 for income tax purposes.