ATO Interpretative Decision
ATO ID 2002/824
Income Tax
Assessability of refund of capital contribution towards obtaining electricityFOI status: may be released
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Is a refund of a contribution towards obtaining an electricity supply, included in the taxpayer's assessable income under section 6-5 of the Income Tax Assessment Act 1997 ('ITAA 1997')?
Decision
No. A refund of a contribution towards obtaining an electricity supply is not included in the taxpayer's assessable income under section 6-5 of the ITAA 1997 as it is a receipt of a capital nature.
Facts
The taxpayer paid an amount to an electricity provider.
The amount was paid before 20 September 1985.
The amount was a contribution towards the cost of obtaining an electricity supply to the taxpayer's property.
Under an agreement, the taxpayer was entitled to receive a full refund of their contribution (without interest) after a specified number of years from the date of the agreement.
The taxpayer received a full refund of their contribution from the electricity provider.
Reasons for Decision
Section 6-5 of the ITAA 1997 provides that the assessable income of an Australian resident for taxation purposes, includes income according to ordinary concepts (ordinary income) derived directly or indirectly from all sources.
Relevant factors in determining whether a payment is ordinary income include:
- •
- whether the payment is the product of any employment, services rendered, or any business;
- •
- whether the payment is expected and relied upon;
- •
- the character of the payment in the hands of the recipient;
- •
- whether the payment is received as a lump sum or periodically; and
- •
- the motive of the person making the payment, although this is rarely decisive by itself.
Under the terms of the agreement, the taxpayer was entitled to receive a refund of the total amount of their contribution, without interest, after a specified number of years from the date of their initial payment.
Generally, expenditure incurred in the installation or connection of utilities (eg. electricity, gas, and telephone) is considered to be an outgoing of a capital nature.
The taxpayer received a full refund of their contribution from the electricity provider. This payment is a refund of a capital contribution made by the taxpayer. The payment is a one-off payment, that was expected but not relied upon, and not related to work performed or an interest in property. It does not have the characteristics of ordinary income but is rather a capital receipt in the taxpayer's hands.
The refund amount is not ordinary income and is therefore not included in the taxpayer's assessable under section 6-5 of the ITAA 1997.
Date of decision: 13 August 2002Year of income: Year ended 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
section 6-5
Keywords
Refunds
Income
Capital receipts
Utility expenses
Date reviewed: 21 April 2015
ISSN: 1445-2782
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
