ATO Interpretative Decision
ATO ID 2003/902 (Withdrawn)
Income Tax
General Practitioner (GP) Links Amalgamation Incentive Payments: whether ordinary incomeFOI status: may be released
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This ATO ID is one of three related ATO IDs in relation to the GP Links payments. ATO ID 2003/904 has already been withdrawn. ATO ID 2003/903 will also be withdrawn as part of the current ATO ID reviews.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Are 'GP Links' Amalgamation Incentive payments received by the taxpayer, a medical practitioner, assessable as ordinary income under subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. 'GP Links' Amalgamation Incentive payments received by the taxpayer, a medical practitioner, are not assessable as ordinary income under subsection 6-5(1) of the ITAA 1997.
Facts
The taxpayer, a medical practitioner, received two payments from the Commonwealth Department of Health and Aged Care (DHAC) under the 'GP Links' Amalgamation Incentive Program.
The 'GP Links' program was established to provide general medical practitioners with incentives to increase the range and quality of services offered to the public. The program encourages small general practitioners to amalgamate their existing medical practices to create larger general practices. Under this program, the taxpayer received two incentive payments as detailed below:
The Stage One incentive payment is to assist a practice to investigate the costs, benefits and feasibility of amalgamation. The practice must certify that the payment will be spent only on the investigation of amalgamation options. The recipient must provide to the DHAC a report listing the benefits of amalgamation.
The Stage Two incentive payment is to assist the practice with costs associated with the actual amalgamation. The payment is made in advance of the actual amalgamation of the practice (that is, physical collocation of the amalgamating practices).
The 'GP Links' program stipulates that the Stage Two payment constitutes a contract between the practice and the Commonwealth, and that all or some of the incentive payment a practice receives will be recoverable if the practice fails to meet certain conditions within the specified time-frames. These conditions are briefly:
- (a)
- evidence that a new amalgamated practice is actually operating
- (b)
- evidence of the closure of all the small practices participating in the amalgamation, and
- (c)
- evidence of progress toward accreditation by the new practice.
Reasons for Decision
Subsection 6-5(1) of the ITAA 1997 provides that the assessable income of a taxpayer includes income according to ordinary concepts, however, the legislation does not define 'income according to ordinary concepts'. Instead, a substantial body of case law has evolved to identify various factors that indicate the nature of ordinary income.
Periodicity, recurrence or regularity are some of the main determinants of ordinary income. The 'GP Links' incentive payments received by the taxpayer are once-only, lump-sum payments and lack the regularity that typifies ordinary income.
In addition, the payments were not received in relation to the carrying on of the daily business activities of the medical practice, but rather in relation to the structure of the entity that conducts the business.
The proceeds of an isolated transaction which is not in the ordinary course of business, even if received as a lump sum, may however be income according to ordinary concepts if the purpose of the transaction is to make a profit.
The aim of the Stage One incentive payment is to enable the practice to offset some (but not necessarily all) of the costs associated with investigating the feasibility of amalgamating with other similar practices to form a new single larger practice.
The aim of the Stage Two incentive payment is to offset some (but not necessarily all) of the costs associated with establishing the new amalgamated practice.
Given this, the transactions have not been entered into by the taxpayer with a view to making a profit.
In view of the above, the 'GP Links' incentive payments received by the taxpayer are not considered to be ordinary income. Accordingly, these payments are not assessable income of the taxpayer under subsection 6-5(1) of the ITAA 1997.
Date of decision: 6 February 2003Year of income: Year ended 30 June 1999 Year ended 30 June 2000
Legislative References:
Income Tax Assessment Act 1997
subsection 6-5(1).
ATO ID 2003/903 (Withdrawn)
ATO ID 2003/904 (Withdrawn)
Keywords
Business income
Income
Profit making purpose
Bounties & subsidies
Grants of financial assistance & funding
ISSN: 1445-2782
| Date: | Version: | |
| 6 February 2003 | Original statement | |
| You are here | 6 May 2016 | Archived |