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LAWCOMM 403 long notes.docx
LAWCOMM_403_long_notes.docx
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LAWCOMM 403 long notes.docx-CONTENTS Tips ...........
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
LAWCOMM 403 long notes.docx-CONTENT...
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
Page 71
The company also offered him a collateral side deal in which they paid him a singular payment if he
agreed to not appear in other movies for a few months
o
Judgment
This was a capital receipt
London and Thames Haven Oil Wharves v Awooll
(1966) 43 TC 491
o
Facts
A tanker negligently damaged a jey – this resulted in the jey being out of use for some me
The insurance company and the tanker paid the owner of the jey for their lost profits and repairs
The tax authority wanted to assess tax on those payments
o
Judgment
The amount paid to repair the jey was a capital receipt because it was paid to repair a capital asset
The amount paid to compensate for lost profits was of a revenue nature because the profits that
would have been made would be taxable income
The principle is
that payments received/paid in relaon to an item are generally of the same nature as
the item
(e.g. if the item is a capital asset, the payment will be of a capital nature)
o
Commentary
This principle means that even selements for ligaon will be taxable depending on what the claim
was – if the claim was for loss of profits, then the selement monies are of a revenue nature and
taxable; if the claim was for damages to the jey, the selement monies are of a capital nature and
not taxable
The plainff could tell the defendant that if the defendant pays for the repairs, the plainff
will waive their loss of profits claim – since the selement monies is relang to a capital
asset, it is of a capital nature and not taxable
Commissioner of Inland Revenue v Wae
[1999] NZLR 529
o
Facts
Wae was a partner in PwC – they entered into a lease of commercial premises (but the property
market at the me was in a poor state)
PwC did a deal with the landlord – PwC signed a lease that provided for very high rent (i.e. above
market value), but a collateral agreement provided for a large lump sum payment from the landlord
The tax authority wanted to assess tax on the lump sum payment (described as a negave premium)
o
Judgment
This was a capital receipt and thus not taxable
o
Commentary
Secons CC 1B and CC 1C now provides for the lump sum negave premium to be taxable
SPECIFIC CASES ON SUBPART CB – BUSINESS AND TRADE-LIKE ACTIVITIES
Although income according to ordinary concepts does not include capital receipts,
the statutory definion of “income”
has been expanded to capture various categories of capital receipts
– most importantly, capital receipts from business
and trade-like acvies
Subpart CB defines “income” as including:
o
amounts derived from business: secon CB 1
o
amounts received on disposal of business assets that include trading stock: secon CB 2
o
amounts derived from profit-making undertakings and schemes: secon CB 3
o
amounts derived from disposions of personal property: secons CB 4 and CB 5
o
amounts derived from disposions of land: secons CB 6A to CB 23B
BUSINESS INCOME
AMOUNTS DERIVED FROM A BUSINESS (SECTION CB 1)
CB 1
Amounts derived from business
(1)
An amount that a person derives from a business is income of the person.
(2)
Subsecon (1) does not apply to an amount that is of a capital nature.
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