Part 1
Schubert, Mahler and Tull are resident Australian seamen employed on the fishing trawler
MV St Cecilia. Whilst on a routine fishing operation the captain of St Ceciliaheard a radio message thatSS Titan, an abandoned oil tankerabout 20 nautical miles to the south was drifting towards the Australian coast. The vessel was badly holed, leaking oil and with present currents and tidal situations it was drifting towards a coral reef a short distance from a stretch of environmentally sensitive coastline. If the tanker wrecked on the reef the environmental and economic consequences would be enormous.
The captain sailed to the reported position of the stricken tanker. In the rough sea, the crew were unsuccessful in their attempt to attach a tow line. The captain then called for volunteers prepared to risk their lives in boarding the vessel and securing a tow line manually. Schubert and Mahler had previously worked on a salvage vessel and had some experience in operations of this type and they volunteered immediately. They displayed considerable bravery in swimming through rough seas, boarded the tanker and fixed a line. The heroic feat was recorded on video by Tull.
Once the line was secure, St Ceciliatowed the tankeraway from the coastline and it was subsequently salvaged by the tug, Resurrection.
Both Schubert and Mahler were awarded an Order of Australia medal by the Australian Government and $100,000 each from Lloyds of London, the insurer of Titan,who had been saved a billion dollar payout.
In addition, Mahler entered into a contract to write an article for a magazine. He was paid $20,000 and an additional $10,000 for signing an agreement not to give interviews on television or to journalists.
Schubert was offered $10,000 for his OA medal. He was in poor health at the time and required medical treatment so accepted the payment.
Tull sold the video to Channel 9 for $8,000 and it was shown exclusively on that station throughout Australia. Later that year he was paid $50,000 to travel to the USA to provide technical advice on a proposed telemovie of the event tentatively entitled ‘Aqualung'. He plans to stay in the US indefinitely and pursue other filmmaking opportunities.
Required 1.
(a) Explain what is meant by ‘income by ordinary concepts'.
(b) Advise what tax consequences arise in respect of the payments to Mahler, Schubert and Tull.
You must refer to appropriate case law and applicable sections of the Income Tax Acts.