Michael Rage was a train driver. However, his real passion was photography. Michael owned an SLR digital camera and lenses worth $12,000. He spent a lot of his spare time looking for and taking exciting and unusual photographs. He particularly enjoyed taking photographs of people, and the night skies. He also owned a $5,000 telescope for the purpose of photographing the night sky.
Michael had set up a web page on which he placed some of his most spectacular photos. Michael was approached by NASA after having seen his web site. NASA asked Michael to join a team of other amateur photographers to photograph designated portions of the night sky. NASA agreed to contribute $3,000 per annum to the maintenance of his photographic equipment.
A regular science programme on TV did a special feature of Michael as a result of his invitation to be amongst a select few to help NASA. Also, Michael had established a strong following as a result of his web site. Because of these two factors request were often made of Michael by other photographers to teach them better photographic techniques generally and of astronomical bodies in particular. Michael was also often approached by people who wanted to take up photographer to teach them the basics of photography.
As a result of these requests Michael began running small classes for basic and advanced photography. Michael would run these classes once every month for beginners over 2 days, and once every month over 2 evenings, for 4 hours each evening, for those wishing to learn the technique of night sky photography. In fact Michael simply incorporated these classes into his usual photographic routine. Thus, on most Friday and Saturday evenings Michael would take photos of the evening sky. Now, every fourth Friday and Saturday he would also teach the art of photography. To help in his lessons Michael bought two new telescopes each worth $3,000, an overhead projector worth $3,500 and a computer worth $1,800 to help in the lessons he gave.
Michael charged the people who attended his classes $175. Each class was restricted to six people. He held ten classes a year for beginners and six classes a year for those wishing to learn how to photograph the night sky. In total Michael received $16,800 in fees.
The salary from train driving is clearly income. However, are the other amounts Michael received assessable income?
Bill & Ben Reticulation Pty Ltd had a entered into a contract worth $15,000 with the Port Cricket Club to replace the drainage system on the playing surface of the club's sporting ground. Shortly after entering into the contract, and before Bill and Ben had done any work under the contract, Port Cricket Club decided it would sell its current sports ground and buy better grounds and facilities. It therefore negotiated with Bill & Ben Reticulation Pty Ltd to be released from the contract. Bill & Ben Reticulation Pty Ltd. agreed to this if they were paid the sum of $6,000. Port Cricket Club agreed to this and duly paid the sum.
Will the $15,000 received by Bill and Ben Reticulation Pty Ltd be taxed and if so why?