Question

What is the difference between ordinary income and statutory income pursuant to the ITAA97 and ITAA36 ? Explain your answer in detail and refer to relevant case law , ATO Guidance in the form of Tax Rulings as well as to the relevant legislative provisions contained in ITAA97 and ITAA36 .

Answer 1

ORDINARY INCOME, REFERING TO THE INCOME THAT IS DERIVED DIRECTLY OR INDIRECTLY THROUGH ALL SOURCES, WHETHER IN OR OUT TO THE AUSTRALIA, IN FINANCIAL YEAR.

EXAMPLE: IT INCLUDES YOUR SALARY OR INCOME RECEIVED FOR RENDERING PERSONAL SERVICES (GO THROUGH WITH SEC 65 OF THE INCOME TAX ASSESMENT ACT 1997).

STATUTORY INCOME, REFERING TO ALL AMOUNTS THAT ARE NOT ORDINARY INCOME, BUT ARE INCLUDED IN YOUR ASSESSABLE INCOME BY WAY OF A SPECIFIC RULE IN TAX LAW.

EXAMPLE: IT INCLUDES CAPITAL GAINS, DIVIDENDS AND FRANKING CREDITS, ANY ALLOWANCES AND REDUNDANCY PAYMENTS (GO THROUGH WITH SEC 10.5 OF THE INCOME TAX ACT OF 1997)

CASE STUDY:

Elizebeth invest much of her savings in FD with her bank the nostalgia.

During the past year she invested three term deposits and the following are the details of those deposits

investment date	maturity date	principal	interest earned
1 sep 2005	1 dec 2005	$10000	$195.00
1 dec 2005	1 may 2006	$12000	$390
1 may 2006	1 aug 2006	$14000	$280

in each case, the interest is received on maturity of the term deposit

SOLUTION:

Interest income is a rewar for the investment of money and assessable under section 6-5 as income according to ordinary concept. Interest income is normally assessable at the time its received in relation to the interest bearing deposits held by elizabeth it is clear the interest has been received on those maturing on 1st dec 2005 and may 1 2006.

Accordingly the june 30 2006 is ended for the year the amount of the $195 and $390 has been derived . At june 2006 30 received by the elizabeth from the interest not bearing deposit maturing on 1 aug 2006.

If the investments were placed by the financial institution which caried on a business of investing and the amout of the inerest derived for the year may be different. Banks ,insurance company, Finance company the deal in a money are generlly required to bring interest to account for tax purpose on a basis.

EXAMPLE : the time that is earned by being debitedto the customer national bank of new island at 1977 ATR282 in the taxation rulling TR 93/27 the general rule the commisioner release on the interest accrues to the financial institution on a daily basis. to apply this to the facts of the present case approximately 2/3 of the interest bearing deposits invested on May 1 2006 will be deemed to have been derived on 30th june 2006. If the investment was held by the financial institution.