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address all the points. Inthis case, consideration could also be given to the periodical nature of thepayments as an added argument to support income, even though periodicity initself is not decisive: see Dixon.
4. Following 3, it is important, particularly in an examination, to limit the length ofyour answers in accordance with the marks allocated to the questions.
5. The answer applied a principle that was developed in a leading case. The principleand the facts of the case were briefly described then applied to the facts of thequestion.
6. A clear conclusion was stated.
Longer question
Alison Burton is the sole proprietor of a newsagency and delicatessen. The publisherof a newspaper held a competition with prizes for the newsagent who sold the mostpapers during the year. Alison as the winner received a cash prize of $1,000 and aholiday package consisting of airfares and accommodation to the retail value of
$5,000, although the cost of the package to the publisher was $3,000. The holidaypackage was awarded on the basis that it was for Alison and her partner only and itwas therefore not transferable or redeemable. Furthermore, Alison entered into anagreement with a soft-drink manufacturer to sell only that manufacturer’s drinks for
the next four years in consideration for an amount of $8,000, payable toher in fourannual instalments of $2,000. She received the first instalment in theincome year in
question.Explain the income tax implications of these events for Alison, making reference torelevant law in your answer. (Ignore any capital gains implications arising from thequestion.)
Suggested answer
The competition prizes
It is necessary to distinguish prizes of a windfall nature from those incidental toincome earning activities. The former are not generallyassessable because they relatemore to luck or chance than to income earning or business activity: see for examplethe racing cases Jones v. FCT (1932) 2 ATD 16 and Martin v. FCT (1953) 90 CLR
470. However, the latter would be expected on the face of it to constitute assessable
income, given that they were won as a direct result of Alison’s business activities: see
for example FCT v. Cooke & Sherden 80 ATC 4140 and Kelly v. FCT 85 ATC 4283.
If any amount is to be assessable, then it will be so as ordinary income under s. 6-5(1).
(1) Cash prize of $1,000
On the basis of the above discussion, and since the cash prize is money and satisfiesthe first characteristic of ordinary income (Tennant v. Smith (1892) 3 TC 158) thisamount would constitute ordinary income assessable to Alison under s.6-5(1). Thefact that the prize is not periodic is not decisive (FCT v. Harris 80 ATC 4238).
(2) Holiday package
Since the holiday package is not money nor convertible into money, it does not satisfythe first characteristic of ordinary income (Tennant v. Smith (1892) 3 TC 158).Therefore we should turn to s.15-2. In Cooke & Sherden 80 ATC 4140 theCommissioner tried to assess non-transferable holidays awarded to soft drink retailersunder the predecessor of s.15-2, ie. s.26(e), by arguing that the soft drink retailersprovided services to the manufacturer/wholesalers, however the court disagreed. A
retailer does not provide services to the manufacture by selling itsproducts. In ourcase we also have a manufacturer – retailer relationship as Alison merely buys thenewspapers to sell in her store. Clearly Alison is not employed by the publisher, no