Income from Personal Exertion, Employment, Gifts, Prizes and Benefits
Employment and service receipts are not taxable merely because an employee received them. The legal task is to identify the connection between the receipt and the income-earning activity, then check the statutory employment-benefit rules and exclusions.
What you should be able to do
- Apply the ordinary-income nexus to salary, commissions, tips, gifts, prizes and third-party payments.
- Use s 15-2 ITAA97 in the correct order and avoid double counting with s 6-5.
- Value non-cash benefits using the correct rule.
- Recognise the interaction between income tax and fringe benefits tax.
- Distinguish income rewards from capital payments for surrendering rights.
- Use Jackson's competition prize, client gift and restraint payment as worked applications.
Ask why the taxpayer received the amount. If employment or services are the real reason, ordinary income or s 15-2 may apply. If the payment is truly personal, gratuitous or capital in character, the result may be different.
Key language
Issue → Rule → Authority → Application
3.1 Personal exertion income: find the connection with the earning activity
Amounts received because of employment, services or other personal effort are a central category of ordinary income. Under ITAA97 s 6-5(1), the question is whether the receipt has a sufficient connection with an income-earning activity so that it is properly characterised as a product or incident of employment or services rendered.
The word “connection” is important. The payer does not have to be the employer; the payment need not be made at the same time as the services; and a single act of service can be enough. The legal task is to identify the real cause of the payment.
Ask: “Why did this taxpayer receive this amount?” If the convincing answer is “because they performed employment duties or services”, ordinary income is strongly indicated. If the convincing answer is “because of a personal relationship, generosity or some independent capital transaction”, income is less likely.
3.2 The personal-exertion nexus through the cases
Brent v FCT demonstrates that an isolated act of service can produce ordinary income. The taxpayer need not be carrying on a business or regularly performing the service. Kelly v FCT shows that a payment or prize made by a third party can still be income where the taxpayer's employment or income-earning activity is the substantial reason for the award. FCT v Dixon illustrates how a payment replacing or supplementing employment income can take an income character even though it comes from a third party and is described as voluntary.
Scott v FCT provides the contrast. A payment associated with a professional relationship can nevertheless be a genuine personal gift where the circumstances show personal gratitude, friendship or generosity rather than remuneration for services. This is why the mere fact that the donor was once a client does not end the analysis.
Hochstrasser v Mayes assists with the proposition that the timing of the services is not decisive; a payment can relate to past or future employment. Calvert v Wainwright and the other authorities in the Forum help students see that gratuities and tips may be income where they arise as an incident of the taxpayer's services.
3.3 A practical causation spectrum
The Forum usefully presents the nexus as a spectrum. At one end, employment or services are the sole or motivating cause of the payment: income is highly likely. Next, employment is an important cause: income remains likely. Further along, employment is merely one of several causes: the answer becomes fact-sensitive. At the far end, the fact that the recipient is an employee is coincidental and the true cause is personal generosity: the receipt may be a gift.
This spectrum is not legislation and should not be cited as if it were a statutory test. It is a reasoning tool. The legal conclusion still comes from s 6-5 and the authorities.
3.4 Section 15-2: allowances, gratuities, compensation, benefits, bonuses and premiums
Section 15-2 ITAA97 is a statutory inclusion provision dealing with specified benefits provided in respect of employment or services. The Forum identifies four key questions:
- Is there an allowance, gratuity, compensation, benefit, bonus or premium?
- Has it been “provided” to the taxpayer? Section 995-1(1) contains an inclusive definition relevant to providing an economic benefit.
- Is it provided “in respect of”, “for” or “in relation directly or indirectly to” employment or services?
- Is it excluded because another provision already deals with it, including where it is already ordinary income under s 6-5?
Section 15-2 is not simply a duplicate of s 6-5. Its statutory language can capture benefits associated with employment or services even where ordinary-income concepts would otherwise create difficulty. But the section contains express exclusions, so the student must read the whole provision, including subsections (2) and (3), rather than stop at the opening words.
3.5 Valuing a benefit: “value to you”
Where s 15-2 applies to a non-cash benefit, valuation becomes important. The Forum uses Donaldson v FCT for the “value to the taxpayer” idea: what would a prudent person in the taxpayer's position be willing to give rather than fail to obtain the benefit? This is not necessarily the retail price, cost to the provider or market value in every case. The correct valuation rule depends on the provision being applied.
That distinction matters in the Week 4 tutorial because Jackson receives both a television and a non-convertible holiday package. The facts deliberately provide retail value, secondary-market value and a prudent-person value so that students must choose the legally relevant measure rather than simply select the biggest number.
3.6 Fringe benefits: employee income tax and employer FBT must be separated
Not every employment-related non-cash benefit is included directly in the employee's assessable income. The course directs attention to ITAA36 s 23L and the fringe-benefits-tax regime. A proper answer asks whether the benefit is a fringe benefit and, if so, whether s 23L makes it non-assessable to the employee while the employer bears a separate FBT liability.
This is an important tax-law habit: identify who the relevant taxpayer is. A benefit may have a tax consequence without being assessable income of the person who receives it.
3.7 Convertibility and non-cash rewards
FCT v Cooke & Sherden is the course's central convertibility authority. Non-cash holiday benefits provided to soft-drink retailers were not ordinary income because the benefits were not convertible into money on the facts. Payne v FCT similarly shows the difficulty of treating personal frequent-flyer rewards as ordinary income where the necessary character and convertibility were absent.
Today, however, an answer must not stop with the cases. Section 21A ITAA36 can apply to certain non-cash business benefits. Section 15-2 can apply in the employment/services context. The correct exam technique is therefore:
- test ordinary income under s 6-5;
- if ordinary income fails, identify any statutory inclusion such as s 15-2 or s 21A;
- apply the correct valuation rule;
- check exclusions and overlap provisions.
3.8 Gifts, gratuities and “thank you” payments
The label “gift” is never decisive. Ask why the payment was made. A $1,000 payment from a client can be income if it is substantially a reward for services, but it can be non-income if the evidence establishes a genuine personal gift. Factors include the relationship between the parties, whether the taxpayer expected payment, whether the payer had already paid full commercial fees, the language used, the taxpayer's employment role and whether similar payments are a regular incident of the occupation.
Scott v FCT should be used as an analytical comparator, not as a magic phrase that makes all client gifts tax-free. A strong student writes: “The facts are closer to / distinguishable from Scott because …”.
3.9 Restraint payments and capital character
The tutorial introduces a different personal-exertion issue: a one-off payment for agreeing not to perform promotional activities for competing airlines. The starting point is whether the payment is ordinary income under s 6-5 or statutory income under s 15-2. Higgs (Inspector of Taxes) v Olivier is relevant to payments for restrictions on future professional activity. The legal character may be capital where the taxpayer gives up or sterilises a valuable right or part of an income-earning structure, rather than merely receiving remuneration for services.
The key is to identify what the payment is for. Is Jackson being paid for past sales performance? For continuing employment? For providing a service? Or for surrendering freedom to exploit a separate promotional opportunity? The answer determines the statutory route and timing.
3.10 Case and provision teaching map
| Authority / provision | Proposition | Use in an answer |
|---|---|---|
| ITAA97 s 6-5 | Ordinary-income inclusion. | Start with the employment/services nexus. |
| ITAA97 s 15-2(1)–(3) | Statutory inclusion for specified employment/service benefits, subject to exclusions. | Use after or alongside s 6-5. |
| Brent v FCT | An isolated act of service may produce income. | One-off service or media-related payment. |
| Kelly v FCT | Third-party prize sufficiently connected with employment can be income. | Awards and performance prizes. |
| Scott v FCT | Genuine personal gift can be non-income despite professional relationship. | Client gifts and gratitude payments. |
| FCT v Dixon | Voluntary third-party payments may be income where they substitute or supplement earnings. | Employment-related support payments. |
| Donaldson v FCT | Assists with “value to taxpayer”. | Valuation under relevant statutory benefit rule. |
| Cooke & Sherden; Payne | Convertibility and character of non-cash rewards. | Then check modern statutory provisions. |
| Higgs v Olivier | Restraint payment can have capital character. | Payment for giving up future activity/right. |
3.11 Tutorial masterclass — Jackson
Jackson receives salary and commissions, a cash competition bonus, a television, a non-convertible holiday, a client cash payment and champagne, rent from an investment property, a dividend, and a restraint payment. The tutorial is teaching you to resist the temptation to classify all of those receipts in one paragraph.
Salary and commissions
These are straightforward ordinary income under s 6-5. The employment nexus is direct.
KAL competition prize
The cash bonus has a strong income character because the competition rewards sales performance. Kelly is the obvious comparator. For the television and holiday, separately address ordinary income, convertibility and s 15-2. Do not use retail value automatically. Explain the valuation rule selected.
Jill's $1,000 and champagne
The payment follows a successfully arranged holiday, which points toward remuneration, but the social friendship and language of personal gratitude point toward a gift. Apply Scott and explain which facts carry the greatest weight. The cash and champagne may require separate valuation/characterisation analysis.
Rent and dividend timing
Rent is ordinarily a return from property and is usually ordinary income. Where rent straddles 30 June, ask when it is derived rather than mechanically allocating it by days unless the applicable derivation principles require that. For the dividend, the course directs attention to s 44(1) ITAA36 and the definition of “paid” in s 6(1); the date of payment/crediting/distribution matters.
$24,000 restraint
Identify precisely what Jackson has surrendered. Apply s 6-5, s 15-2 and Higgs v Olivier. The fact that FWL is not party to the agreement and the restriction operates in Jackson's personal capacity matters to the connection with employment.
3.12 HD IRAC model method
I — Issue
For each receipt, identify whether it is ordinary income, statutory income, excluded/non-assessable, or capital, and determine the amount and income year of inclusion.
R — Rule
Use s 6-5 first, then s 15-2 and any relevant fringe-benefit or valuation provisions. State the causal/nexus proposition from the closest case rather than listing every authority.
A — Application
Explain the true cause of each payment. For non-cash benefits, separate character from value. For gifts, compare the facts with Scott. For the competition, compare with Kelly. For restraint money, explain what right is surrendered and why that points toward income or capital.
C — Conclusion
Give an item-by-item conclusion and a total only after every item has been legally characterised.
3.13 Plain-English summary
Personal exertion income is about causation. Ask why the taxpayer received the benefit. Employment, services and performance point toward income; personal generosity can point toward a gift; surrender of a valuable right may point toward capital. Non-cash form does not end the analysis. Work through ordinary income, statutory income, valuation and exclusions in that order.
Deep Teaching Commentary — Learn the Doctrine, Then Learn How to Use It
Personal exertion income asks why the taxpayer received the amount. Salary and wages are obvious, but the harder university problems involve prizes, gifts, allowances, third-party payments, non-cash benefits, compensation and restraints. The correct method is to identify the earning activity, ask whether the receipt is a product or incident of that activity, and then consider statutory additions and exclusions.
The cases form a spectrum. At one end are amounts clearly earned for services. At the other are private gifts or capital payments where the employment or service relationship merely provides the occasion for the receipt. Between them are awards, tips, gratuities and benefits where the facts must be compared with the authorities. A good answer explains the causal connection rather than relying on labels such as “gift” or “bonus”.
Non-cash benefits require two separate questions: is the benefit income or brought in by a statutory provision, and if so how is it valued? The course deliberately contrasts ordinary-income realisable value with the “value to the taxpayer” language used in s 15-2 and with the FBT regime.
Provision-by-provision teaching guide
| Provision / regime | What it does | How to use it in a university answer |
|---|---|---|
| ITAA97 s 6-5 | Ordinary income from personal exertion depends on a sufficient nexus with employment, services or another income-earning capacity. | Use first for salary, commissions, prizes connected with work, tips and third-party rewards. |
| ITAA97 s 15-2 | Specifically brings in allowances, gratuities, compensation, benefits, bonuses and premiums provided in respect of employment or services, subject to its interaction with ordinary income and other regimes. | Use after s 6-5 where the receipt is employment/service related but ordinary-income character is uncertain. |
| ITAA97 s 6-25 | Coordinates overlapping income provisions and prevents inappropriate double inclusion. | Use when the same receipt appears capable of falling under both s 6-5 and s 15-2. |
| ITAA36 ss 21 and 21A | Section 21 provides a general money-value concept; s 21A deals with certain non-cash business benefits and is particularly relevant in later business-income analysis. | Do not assume the face retail price is automatically the assessable value. |
| FBTAA 1986 s 136(1) | Defines fringe benefit and contains important exclusions, including salary/wages and other payments dealt with elsewhere. | Classify the benefit before applying FBT valuation/exemption rules. |
| FBTAA ss 58P, 58X, 58Y and 58Z | The course identifies examples of FBT exemptions, including minor benefits and specified work-related benefits. | Use only after establishing that the benefit is within the FBT regime. |
| ITAA36 s 23L | Prevents ordinary fringe benefits being taxed again in the employee’s assessable income, with the course drawing attention to the distinction between subsections (1) and (1A). | Use to explain why the employer can have an FBT liability while the employee does not include the same fringe benefit as ordinary assessable income. |
Cases, rulings and authorities — proposition + exam function
| Authority | Proposition taught by the source material | When to use it |
|---|---|---|
| Brent v FCT 71 ATC 4195 | An isolated act of service can generate ordinary income; repeated employment is not essential. | Use where a taxpayer performs a one-off service or provides information/assistance for payment. |
| Scott v FCT (1966) 117 CLR 514 | A payment described as a gift may remain non-income where the personal relationship and donative character dominate rather than the professional services. | Use for gifts/gratuities from clients and compare facts carefully. |
| Kelly v FCT 85 ATC 4283 | A third-party prize can be ordinary income where it is a product or incident of the taxpayer’s income-earning activities. | Use for competition prizes connected with employment or professional performance. |
| FCT v Dixon (1952) 86 CLR 540 | Periodic payments replacing employment income can take income character because of their connection with the taxpayer’s employment circumstances. | Use for substitutes for salary and income-maintenance payments. |
| Hochstrasser v Mayes [1960] AC 376 | A payment linked in time to employment can nevertheless be compensation for a personal/capital detriment rather than remuneration for services. | Use to show that “because of employment” is not the same as “income from employment”. |
| Donaldson v FCT 74 ATC 4192 | The course uses the case for valuation concepts, including what a prudent person in the taxpayer’s position would pay rather than go without the benefit. | Use when a non-cash benefit has no simple cash amount. |
| Cooke & Sherden; Payne | Demonstrate convertibility and realisable-value issues for non-cash ordinary income. | Use before moving to statutory provisions that may now alter the historical outcome. |
| Higgs v Olivier [1951] Ch 899 | Classic authority for a payment for a restrictive covenant being capital rather than ordinary remuneration. | Use where an employee is paid not to work or compete. |
Matching tutorial — fact-by-fact reasoning map
Straightforward ordinary income under s 6-5. State the amount and move on efficiently.
The prize is strongly connected with Jackson’s work selling the airline’s tickets; Kelly supplies the analogy. Explain the employment nexus.
Characterise first, then value. Compare retail price with realisable value and the statutory valuation rules relevant to the provision used.
This is the difficult item. Work through convertibility under ordinary income, possible s 15-2 treatment, and the relevant valuation measure rather than assuming retail price.
Apply Scott and the gift/gratuity cases. Ask whether the payment is really a reward for services or a personal gift arising from friendship.
These receipts belong to other income categories, but the tutorial tests timing. Apply the derivation/payment rules for the current income year.
Analyse the payment as consideration for surrender/restriction of a capital right or earning capacity, with Higgs v Olivier as the principal comparison; then consider CGT consequences if within syllabus scope.
How to write this chapter in IRAC / tax-problem form
Issue. Identify the taxpayer, income year and transaction. Break the problem into separate receipts, outgoings, CGT events or administrative decisions. Do not write one broad issue such as “what tax is payable?”.
Rule / Law. Start with the exact Act and provision. If the section contains multiple limbs, subsections, paragraphs, exceptions or a method statement, set them out in the order in which they operate. Then add the case, ruling or ATO authority for the particular proposition it explains.
Application. Apply one fact to one legal element at a time. Compare the facts with the authority and deal with the strongest alternative characterisation. Where the law requires a calculation, show the legal order and the arithmetic together.
Conclusion. State the legal tax consequence and amount where possible. Then add any associated loss, penalty, objection/review, timing or administrative consequence relevant to the chapter.
Chapter mastery — 15 questions with model answers
Source-Coverage Audit — Every Statutory Reference in the Supplied Materials
This completeness layer preserves every detected Act, Part, Division, Subdivision, section, subsection, paragraph and method-statement reference from the supplied Forum/Tutorial materials. Use the teaching chapter above for explanation; use this audit to ensure no source reference is silently omitted.
Source-Coverage Audit — Every Case, Ruling and Authority in the Supplied Materials
Every detected case or ruling from the aligned materials is retained here. The blue link opens an AustLII search so the authority can be checked and later replaced with the most direct official/public judgment link where appropriate.
Detailed Forum / Lecture Source Notes — Completeness Layer
The following is the detailed teaching layer derived from the supplied Forum material. It is kept deliberately full at draft stage so that the final editing pass can improve prose without losing doctrine, examples, calculations or statutory detail.
Income As A Reward From Personal Exertion
An amount is ordinary income under section 6-5(1) ITAA97 if there is a sufficient nexus (or connection) with an earning activity. In the context of personal exertion, the nexus test will be satisfied if an amount is characterized as a product or incident of employment or a reward for services rendered.
The nexus test may still be satisfied even if an amount is consideration for past or future services (Hochstrasser v Mayes [1960] AC 376); is paid by a 3rd party (Kelly v FCT 85 ATC 4283, Dean & Anor v FCT 97 ATC 4762); or is the product of an isolated act of service (Brent v FCT 71 ATC 4195).
*Brent v FCT 71 ATC 4195
*Scott v FCT (1966) 117 CLR 514
*Kelly v FCT 85 ATC 4762
Calvert (Inspector of taxes) v Wainwright (1947) 27 TC 475
*FCT v Dixon (1952) 86 CLR 540
Income
Not Income
A
B
C
D
Employment/ services are the sole or motivating cause of the payment
Employment/ services are an important cause of the payment
Employment/services are one of many causes
Payment is motivated by one or more causes and the fact that the recipient is an employee is fortuitous
What do the cases we have just considered demonstrate to us about the ordinary income concept? In summary:
Amounts derived from employment and rewards for services are income
Gifts unrelated to employment, services or business do not have the character of income
Statutory Additions To The Judicial Concept Of Income In The Context Of Personal Exertion
From 1 July 2006, section 26(e) ITAA36 has been repealed, and new section 15-2 of the ITAA 97 has become operative.
Section 15-2 of the ITAA 97 provides:
15-2 Allowances and other things provided in respect of employment or services
Your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums *provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you (including any service as a member of the Defence Force).
This is so whether the things were provided in money or in any other form.
However, the value of the following are not included in your assessable income under this section:
a superannuation lump sum or an employment termination payment;
an unused annual leave payment or an unused long service leave payment;
a dividend or non-share dividend;
an amount that is assessable as ordinary income under section 6-5;
an employee share scheme interest to which Subdivision 83A-B or 83A-C applies.
4 requirements to trigger s 15-2:
There must be an allowance, gratuity, compensation, benefit, bonus or premium.
The receipts must have been “provided” to the taxpayer.
Section 995-1(1) ITAA97 defines to "provide" an economic benefit as including: to allow, confer, give, grant or perform the benefit.
The receipts must have been in respect of (or for or in relation directly or indirectly to) any employment or services rendered by the taxpayer.
The receipt must not otherwise be excluded (eg because it is ordinary income).
What is one of the key differences between former s 26(e) and s 15-2?
Can s 15-2 apply to benefits that are not convertible into money?
If section 15-2 is triggered, the amount to include in assessable income is the “value to you” meaning the ‘value to the taxpayer’. This was the equivalent valuation rule in former s 26(e) ITAA36.
The meaning given to the phrase ‘value to the taxpayer’ by Bowen CJ in Donaldson v FCT 74 ATC 4192 is ‘what a prudent person in [the taxpayer’s] position would be willing to give for [the item] rather than fail to obtain [it].’
This valuation rule most probably focuses on the taxpayer’s position, which would include a consideration of the taxpayer’s desire for the benefit.
Contrast this with the valuation rule under s 6-5 ITAA97. The valuation rule under s 6-5 is the ‘realisable value’ of the relevant benefit: Donaldson v FCT 74 ATC 4192. Presumably this means the amount that a willing but not anxious purchaser would be prepared to pay for the relevant benefit (akin to the market value?). Also consider s 21 ITAA36 and the “money value” of the consideration provided.
From 1 July 2006, would s 15-2 apply in the following cases?
*FCT v Cooke and Sherden 80 ATC 4140
*Smith v FCT 87 ATC 4887
*Payne v FCT 96 ATC 4407
*Kelly v FCT 85 ATC 4283
*Case Z9 92 ATC 144
Valuation issues in former s 26(e): an impetus for reform - Fringe Benefits Tax (see below)
Section 15-3 ITAA97 includes in a taxpayer’s assessable income:
an amount received under an arrangement
that an entity enters into for a purpose of inducing the taxpayer
to resume working for, or providing services to, any entity.
For example, a cash payment received by a former employee for agreeing to be re-employed by their former employer.
The ITAA97 also includes provisions governing the tax treatment of employment termination payments, genuine redundancy payments, and unused annual leave and unused long-service leave payments. We will not consider these rules in this course.
FBT is a tax imposed on employers on the value of ‘fringe benefits’ (as defined in s 136(1) Fringe Benefits Tax Assessment Act 1986 (Cth) (FBT Act)) provided to employees or to associates of employees in respect of their employment for the FBT year (1 April to 31 March).
What is a fringe benefit?
Elements of the definition of ‘fringe benefit’ in s 136(1) of the FBT Act:
Benefit (provided during the year of tax)
By an employer (or associate, third party arranger or other relevant person)
To an employee (or associate)
In respect of the employment of the employee
That is not covered by the exclusions in the s 136(1) ‘fringe benefit’ definition
In relation to the last point above, examples of exclusions from the section 136(1) definition of fringe benefit are:
Paragraph (f) - ie payments of ‘salary or wages’ (See the section 136(1) definition of ‘salary or wages’ and the cross-reference within that definition to Schedule 1 of the Taxation Administration Act 1953 (Cth). In particular, note the type of payments covered by section 12-35 in Schedule 1 to the Tax Admin Act).
Paragraph (g) - ie exempt fringe benefits (see examples below).
Once you are satisfied that your benefit satisfies the definition of ‘fringe benefit’ in s 136(1), you need to then ask: what type of fringe benefit have I got? This is because the FBT Act contains specific valuation rules depending on the classification of your ‘fringe benefit’.
The types of fringe benefits identified in the FBT Act are:
expense payment benefits;
car benefits;
debt waiver benefits;
loan benefits;
housing benefits;
living away from home allowances;
airline transport fares;
entertainment by tax exempt bodies;
car parking benefits;
property benefits; and
residual benefits (ie those not covered in the above list).
Exempt fringe benefits
Some benefits are exempt from FBT. Examples include:
minor benefits with a notional taxable value of less than $300 (see s 58P FBT Act).
the provision of certain eligible work-related items like portable electronic devices, computer software, protective clothing, briefcases, and tools of trade provided they are used primarily in the employee’s employment (see s 58X FBT Act - subject to some exceptions).
subscriptions to trade or professional journals (s 58Y FBT Act)
certain taxi travel (s 58Z FBT Act).
Integrating The Various Personal Exertion Regimes
Consider the relationship between sections 6-5, 6-25 and 15-2 ITAA97.
If a benefit is a ‘fringe benefit’ then the employer pays FBT.
Note the exclusions from the definition of ‘fringe benefit’ in the s 136(1) FBT Act definition. Importantly, note paragraphs (f) and (g) of the definition of ‘fringe benefit’ in section 136(1). What does this mean? What are ‘salary or wages’?
To prevent fringe benefits from being subject to further tax, s 23L(1) ITAA36 makes ‘fringe benefits’ non-assessable, non-exempt income in the hands of employees. Note the distinction between subsections (1) and (1A) in section 23L(1). When does each sub-section in section 23L apply? What is the practical difference between exempt income and non-assessable non-exempt income (refer to s 6-23 and Division 36 ITAA97)?
If an amount is assessable as ordinary income under s 6-5, it can not be included in assessable income under section 15-2 ITAA97. Note the initial phrase “[u]nless the contrary intention appears” in section 6-25(2) ITAA 97. Does s 15-2 ITAA97 express a contrary intention? What is the practical effect of this?
What valuation rule does s 6-5 impose compared to s 15-2 ITAA97?
Capital Payments In The Context Of Rewards For Personal Exertion
Consider the following examples:
*Case Z9 92 ATC 144
*Brent v FCT 71 ATC 4195
*Higgs v Olivier [1951] Ch 899
Reward for services vs disposal of valuable rights
Consider how s 15-2 ITAA97 or the FBT Act might apply, if at all, to any of these cases.
Matching Tutorial — Full Problem Source and Teaching Integration
The tutorial is part of the chapter, not an afterthought. Read the facts by turning each receipt, outgoing, event or procedural step into a separate issue. Write the relevant provision beside each issue before applying the cases.
Tutorial 3 - Week 4
Jackson is employed as a travel agent for Flight World Ltd (“FWL”), which operates travel agencies across Australia. Jackson’s annual salary is $75,000, and he received $25,000 in sales commissions during the 2025-26 income year.
In mid-July 2025, Koala Airlines Ltd (“KAL”) launched a new daily service between Syndey and Las Vegas. To encourage sales, on 15 July 2025 KAL sends a memo to all travel agencies across Australia announcing that the travel agent who sold the most number of return, business-class tickets on the new daily service before 24 December 2025 would win a valuable prize (as set out below).
Jakson is the lucky winner, and on 24 January 2026 he received the prize from KAL which consisted of:
a $15,000 cash bonus;
a 75-inch OLED TV that retails for $5,500. If Jackson chose not to keep the TV, he could reasonably expect to sell it immediately on the secondary market in an “as new” condition for $4,200; and
a 10-day holiday package to Las Vegas for Jackson and a companion, which consisted of flights and accommodation. The holiday package was not convertible into cash. An equivalent holiday package could be purchased by a member of the public for $25,000. A prudent person in Jackson’s position would be willing to pay $20,000 for the package rather than failing to obtain it.
As an employee of FWL, Jackson had organised a holiday for one of his regular and wealthy clients, Jill. The holiday included a return cruise from Santiago to Antarctica for Jill (and her husband Bill). Jackson had developed a friendship with Jill over several years, and they sometimes met socially. While catching up with Jill and some other friends at the local pub on a Friday night in February 2026, Jill handed $1,000 in cash and a bottle of French champagne (which retails for $75) to Jackson saying:
“This is just a small thank you for arranging the best holiday that Bill and I have ever had. Please keep this my dear friend Jackson as a gesture of my appreciation.”
Jackson was slightly embarrassed yet he accepted the money and champagne.
In April 2026, Jackson purchased a residential investment property in Brisbane. Jackson manages the property himself and he began renting it out to a tenant on 20 May 2026. On 19 May 2026, Jackson received $3,200 in rent from the tenant for the period 20 May 2026 to 19 June 2026. On 19 June 2026, Jackson received a further $3,200 in rent from the tenant for the period 20 June 2026 to 19 July 2026.
Jackson owns shares in Alpha Pty Ltd (“APL”). On 30 June 2026, APL paid Jackson an unfranked dividend of $1,000. Jackson received the dividend on 2 July 2026.
Advise Jackson of the amount included in his assessable income for the income year ending 30 June 2026. Support your answer with relevant legislative references and case law principles. Provide a reason for any exclusions.
Assume the following additional facts:
Jackson acknowledges that as a result of publicity following the KAL sales competition, he may have opportunities to promote and endorse airlines in his personal capacity for remuneration.
KAL became concerned that competitor airlines might seek to recruit Jackson for their promotional campaigns, at least for the foreseeable future. To mitigate this risk, KAL offered Jackson a one-off $24,000 payment.
The payment was conditional on Jackson agreeing that, in his personal capacity, he would not engage in any promotional activities or endorsements for airlines operating between Australia and the US (including for KAL) between 1 March 2026 and 28 February 2027, other than in the ordinary course of his employment duties.
Jackson accepted, and the written agreement implementing the terms was executed on 27 February 2026. Jackson received the $24,000 from KAL on 1 March 2026.
FWL was not a party to, and had no involvement in, the agreement nor did FWL “arrange” it in any way.
Advise Jackson whether the $24,000 would be included in his assessable income pursuant to s 6-5 or s 15-2 ITAA97, and if so, when it is included. In doing so, consider Higgs (Inspector of Taxes) v Olivier (1951) 1 Ch 899.