Question

Australian TAX

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

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

The explained scenario is relevant to both John and David and need to be analysed from each of their perspective to understand the income for tax purposes.

For John

Had John sold his caravn in market and he would have received $12,000. Hence, John is assumed to be be paying $12000 in return of David's labour. We should assume that he sold his caravan at market price of @$12,000 giving arise to capital gains of $1,500, an income for John to be reported from tax purposes.

For David

Had David taken a pay for his services he would have expected $11,000. Hence when he is getting a caravan in exchange of services offered to the tune of $11,000 it would mean that the Service income of David is $11,000 for tax purposes.