Jack is a resident investor who has many different investment activities. What a
ID: 2330941 • Letter: J
Question
Jack is a resident investor who has many different investment activities. What amount should he bring to account as ordinary income in the of the current tax year ended 30 June based on the following amounts that he received? Receipt of $45 000 from the sale of land he purchased as an investment 5 years ago. Receipt of $27 000 for agreeing not to open a fast food outlet in Toowoomba for the next 3 years. The payer, Kate had purchased a fast food business from Jack and wanted to ensure that Jack would not open another business in competition with her for 3 years. Receipt of $15 000 from the sale of trading stock in a small business that he operates. Receipt of $22 000 from a lottery operated by a national lottery firm. Select one: 1. $109 000. 2. $94 000. 3. $87 000. 4. $60 000. 5. $15 000.
Explanation / Answer
Answer: 5. $ 15,000.
In business, ordinary income is any type of income that comes about through the daily operations of a company. This does not include income earned from the sale of capital assets, such as is the case with land or long-term equipment. Receipt of $ 45,000 from sale of land is not ordinary income since land is capital asset.
Receipt of non-compete fees of $ 27,000 is not ordinary income as it is not related to the daily operations of the business. On the other hand, purchase and / or sale of trading stock is part and parcel of Jack's business. Therefore, $ 15,000 received from sale of stock is ordinary income.
Receipt of $ 22,000 from a lottery is a windfall gain not related at all to his business.
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