Question

Required: Ignoring capital gains tax, discuss whether Nick’s receipt of the laptop constitutes assessable income.

Bessie enters into a contract with a builder for some major renovations on her main residence. However, she finds that much of the work undertaken by the builder is substandard. She wished to take the builder to court. To save costs, Bessie did not engage a lawyer. Rather, she handles a lot of the legal work herself and often seeks the informal guidance of Nick for advice. Nick is a full-time lawyer and has been friends with Bessie for over 20 years. Bessie will often speak to Nick about what her next step should be in the legal proceedings against the builder. When Bessie prepares written correspondence and official documentation relating to the case herself, she gets Nick to review it. Nick does all this for free. For a few months, Nick typically spends about 2 hours a week on this.

Ultimately, Bessie’s case with the builder is settled out of court for an amount that Bessie is very happy with. Bessie, as a show of gratitude for Nick’s help, buys him a brand-new laptop worth $4,000 as a present, which Nick reluctantly accepts.

Answer 1

Assessable income is an amount which is earned by either providing consultations or advisory services, or performing some trading activities, or selling a property. It is an ordinary income.

Here, Nick is providing his advisory services to his friend Bessie. In return, as a show of gratitude, for Nick’s help, Bessie buys him a brand-new laptop worth $4,000 as a present, which Nick reluctantly accepts.

He accepts the laptop for the work he has done for Bessie. It is like an ordinary income for him.