Question
Fresh Juice Ltd is a manufacturer of fruit juices. In 2019 it purchased a new juicing machine for $420,000 for use in its business. The
Fresh Juice Ltd is a manufacturer of fruit juices. In 2019 it purchased a new juicing machine for $420,000 for use in its business. The new machine didnt match the description and was not fit for the purpose. Fresh Juice Ltd alleged that it is faulty to the manufacturer. Fresh Juice Ltd filed a statement of claims against the supplier claiming breach of contract and misrepresentation resulting in revenue loss and sought $650,000 in damages.
The manufacturer denied the liability but, in March 2021, agreed to make a lump sum payment of $170,000 out of court settlement for the claims. Although the amount was much less than Fresh Juice Ltds original claim, they decided to accept the amount as they intended to use a significant part (sixty per cent) of the settlement money to alter the machine structure to bring it up to the standard represented by the supplier.
2
Required
Advise whether the receipts of $170,000 are of an income or capital nature using guidance from case law and ITA 2007.
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