ATO Interpretative Decision

ATO ID 2002/212

Income Tax

Derivation of income - Monies retained in maintenance reserve
FOI status: may be released

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CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 monies received under an agency agreement and held in a maintenance reserve by the taxpayer assessable income of the taxpayer under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).

Decision

No. The monies retained in a maintenance reserve by the taxpayer are not assessable under section 6-5 of the ITAA 1997 as income under ordinary concepts.

Facts

The taxpayer under an agency agreement operates a transport vehicle owned by a foreign resident company as the managing agent and registered proprietor in Australia.

Under the agency agreement surplus funds from the operation of the transport vehicle are retained in an account and held as a maintenance reserve by the taxpayer for the period of the agreement.

The foreign resident owner has the sole discretion to apply all or any part of the reserves to the payment of operating expenses. At the end of the agreement, the remaining reserve funds are dispersed by the owner at its sole discretion.

Reasons for Decision

In determining whether a taxpayer has derived an amount of ordinary income and when it was derived, the taxpayer is taken to have received the amount when it is applied or dealt with in any way on the taxpayer's behalf or as the taxpayer directs; section 6-5(4) ITAA 1997.

The amounts paid into maintenance accounts are not funds derived by the taxpayer but are more correctly funds derived by the foreign resident owner. They are merely retained within a maintenance reserve should there need to be a maintenance disbursement, which will be at the sole discretion of the foreign resident owner.

Date of decision:  19 December 2001

Year of income:  Year ended 30 June 2001 Year ending 30 June 2002 Year ending 30 June 2003 Year ending 30 June 2004 Year ending 30 June 2005

Legislative References:
Income Tax Assessment Act 1997
   subsection 6-5(4)
   section 6-5

Keywords
Derivation
Agency
Ordinary income

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  28 February 2002

ISSN: 1445-2782

history
  Date: Version:
You are here 19 December 2001 Original statement
  13 June 2008 Archived

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