Luciano is concerned about his taxable income for the year and so he directs that his employer not pay him his next salary payment, due on 29 June 2020, and instead have that payment go direct to the local council and be shown as being paid on Luciano's behalf. The employer reluctantly agrees to do so. What is the tax effect of this arrangement for the year ended 30 June 2020?

Question

Quizplus · Accepted Answer

Luciano will still be assessed on this salary payment in the year ended 30 June 2020 because under tax law, income is generally assessed to the person who earns it, regardless of who actually receives the payment. This is known as the doctrine of constructive receipt, which means that income is taxable when it is credited to the taxpayer or made available to them, regardless of whether it is actually in their possession.

Luciano Is Concerned About His Taxable Income for the Year