No full FITO on US capital gains as CGT discount "excludes" part of gain : taxpayer in Burton has a case. Part 2

This article builds on Part 1, published at 2019 WTB 10 [297) where the claim was made that s 102-5(1) is not a "normal assessable income" provision. The main point of Part 2 is to place the s 102-5(1) method statement (Steps 0 to 5) up against some relevant structural foundations of the income tax. The aim of doing this is to test for coherency between Steps O to 5 and the relevant structural foundations of the income tax. The conclusion is that the making of a capital gain (Step 0) has far greater coherence with some relevant structural foundations of the income tax. Given this, there may be scope for identifying the positive components (capital gains) that made it into s 102·5(1) with the end result of s 102-5(1 ) so that a capital gain may itself be described as assessable income for various limited purposes in the income tax. The key question is whether there is scope to interpret s 102-5(1) such that a particular capital gain can be identified as assessable income for limited purposes. The related question is that if a point earlier than Step 5 can be so identified, what is that point? The latter question may be crucial because the working assumption of the ATO and that of McKerracher J in Burton v FCT [2018] FCA 1857 (reported at 2018 WTB 50 [ 1621 ]) appears to be that the point at which an item becomes assessable income will be taken as the point of measurement of the relevant amount of assessable income. The amount of assessable income appears crucial to the operation of s 770-10(1) and related FITO provisions. It must be conceded though that in express terms, the 5 steps in the s 102-5(1) method statement consistently refer to capital gains, and that it is only at [just after] Step 5 that the term assessable income is introduced. In addition, the extinguishments, exclusions and reductions occurring within the steps in s 102-5(1) are all expressly directed at capital gains and not assessable income.