Case Study One

The following separate transactions require your advice as indicated:

Melanie carries on a cleaning business and earned $500,000 in taxable income during the year ended 30 June 2020. Her largest contract is with Brisbane International Airport where she undertakes commercial cleaning. This contract accounted for 60% of her total cleaning service income received in the 2020 income year. On 1 October 2020, Brisbane International Airport cancelled their contract for cleaning services due to the decline in international visitor arrivals. They intend to utilise existing employees to undertake cleaning until normal travel conditions apply again. Since there was still 18 months of her contract remaining, they paid her compensation of $150,000 on 1 October 2020 for cancelling the contract. Melanie is uncertain as to whether she can continue to operate her business without this contract. Further, during the year ended 30 June 2021, Melanie received $40,000 in JobKeeper payments from the Australian Government to compensate her for loss of cleaning income during the pandemic. Provide advice to Melanie as to whether either amount would be ordinary income.

REQUIRED: For all scenarios above, provide advice as requested. You must support your discussion with reference to any relevant authorities (including legislation and relevant case law). Please refer to the marking criteria for further details on requirements