question archive Question 1: Income under ordinary concepts Hemi is a design student and a well-known Wellington street artist
Question 1: Income under ordinary concepts Hemi is a design student and a well-known Wellington street artist
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Question 1: Income under ordinary concepts Hemi is a design student and a well-known Wellington street artist. In 2018, he started a "vlog", commenting on videos of himself painting murals around the city. Fashion stores often send Hemi clothes and sport shoes in the hope that he will wear them in his videos. Occasionally, Hemi receives limited edition sneakers which he sells on Trade Me. After he was charged with criminal graffiti in early 2019, Hemi receives a great deal of publicity, and the number of people viewing his vlog soars. Skate World starts sending Hemi a new pair of limited-edition sneakers every month. (Each pair is worth at least $500.) Hemi is approached by MediaMega, a firm which specialises in obtaining advertising for websites. He enters into an agreement with MediaMega to place particular products in his videos, and receives a micro-payment for each person who views his vlog. In December 2019, MediaMega paid Hemi for $10,000 for videos-viewed. This met the costs of hosting his webpage ($500) that year and gave him some spare money for his fourth year at university. He is looking forward to a bigger payment from MediaMega in December 2020 as his vlog has attracted yet more followers. Required: Explain whether the sneakers Hemi received from SkateWorld and the money he receives from MediaMega would be income under section CA 1(2) of the Income Tax Act 2007 (income under ordinary concepts).
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The sneakers Hemi received from SkateWorld is not income whereas the money he receives from MediaMega is considered income under ordinary concept.
Step-by-step explanation
As per Section CA 1(2) of the income tax act 2007 ordinary income is considered income only if the amount collected or earned is specifically identified as income or it is income under ordinary concepts. The fact that Hemi plans for the money he earns from MediaMega symbolizes the ordinary concept. Therefore, it is true to consider it as income. Besides, they entered into a contract and Hema hope for the increase amount he receives because he is putting out videos which amplifies the advertisement of the MediaMega products. This means that he considers the act as a business thus, it is his income.
On the other hand, Section CA 1(2) of the income tax act 2007 exempt amounts or exclude income if it is not their sourced income. The Sneaker Hema gets is not under his consent he does not request for them yes, in wearing them he promotes the SkateWorld products but he does not consider it as a business. Moreover, the money is generated from the sale of the sneakers meaning the relationship of the source with the Skateworld is secondary at best. Therefore, it is not his ordinary source and the fact that we are told he only plans to use the money from MediaMega for his needs signifies the exemption of skateworld amounts as income hence the sneakers Hemi receives from SkateWorld is not income.
