ATO Interpretative Decision

ATO ID 2003/1141 (Withdrawn)

Income Tax

• This ATO ID is withdrawn and is replaced by draft Taxation Determination TD 2004/D66.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Are amounts received by the taxpayer to cover expenses incurred as a respite carer for a disabled person assessable under paragraph 26(e) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

Yes. Payments received by the taxpayer to cover expenses incurred as a respite carer for a disabled person are assessable under paragraph 26(e) of the ITAA 1936.

Facts

The taxpayer provides volunteer respite care for a person with a disability.

The respite care is organised by an independent organisation. The taxpayer is not an employee of that organisation.

The taxpayer is paid an amount in respect of costs they are expected to incur in providing the respite care. The amount is paid by the independent organisation and is determined according to a standard rate. The amount paid is the same regardless of the degree of disability of the person being cared for.

The payment made is not designed to remunerate the taxpayer for the hours of care provided.

The taxpayer is not required to account for their expenditure nor are they required to repay any unspent monies. There is no avenue for the taxpayer to pursue additional payments if their expenses are greater than the payment received.

Reasons for Decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

Ordinary income has generally been held to include 3 categories; income from rendering personal service, income from property and income from carrying on a business.

Paragraph 3 of Taxation Ruling IT 2639 defines 'income from personal services' as:

... income that an individual taxpayer earns predominantly as a direct reward for his or her personal efforts by, for example, the provision of services, exercise of skills or the application of labour. The inclusion of predominantly in this definition allows for the situation where personal services involve the use of some equipment, for example the drawing board of an architect.

Other characteristics of income that have evolved from case law include receipts that:

•

are earned

•

are expected

•

are relied upon; and

•

have an element of periodicity, recurrence or regularity.

The payments to cover expenses incurred by the taxpayer as a respite carer are expected, and have an element of regularity. However it cannot be said that they are 'earned', as they are not paid as a direct reward for the services performed. Rather they relate to personal expenses incurred in the course of rendering the services. The elements of expectation and regularity in this case are not sufficient to characterise the payments as ordinary income assessable under section 6-5 of the ITAA 1997.

Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income but are included in assessable income by another provision, are called statutory income.

Under paragraph 26(e) of the ITAA 1936 the value of all allowances, gratuities, compensation, benefits, bonuses and premiums allowed, given or granted directly or indirectly in respect of employment or services rendered is included in assessable income.

Paragraph 2 of Taxation Ruling TR 92/15 states that a payment is an allowance when a person is paid a definite amount to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to expend the allowance.

Paragraph 3 of TR 92/15 provides that a payment is a reimbursement when the recipient is compensated exactly (meaning precisely, as opposed to approximately), whether wholly or partly, for an expense already incurred although not necessarily disbursed. A requirement that the recipient vouch expenses and refunds unexpended amounts adds weight to the presumption that the payment is a reimbursement rather than an allowance.

In the circumstances here the taxpayer receives an amount to cover their estimated expenses. The taxpayer does not need to establish or confirm that they have incurred, or will incur, these expenses in order to be entitled to the payment. They are not required to account for their expenditure or repay any unexpended amounts. In applying the principles in TR 92/15 it can be said that the amount paid to the taxpayer, to cover expenses incurred as a respite carer, is properly characterised as an allowance rather than a reimbursement. Accordingly, the payment is included in assessable income under paragraph 26(e) of the ITAA 1936 as an allowance given in respect of services rendered.

Note: The taxpayer may be entitled to claim losses and outgoings to the extent which they are incurred in gaining or producing the assessable income as a respite carer except where the outgoings are of a capital, private or domestic nature. Amounts typically expended on providing the disabled person with respite care, including food, clothing, laundry and transport, will not normally be considered to be of a capital, private or domestic nature.

Year of income:  Year ended 30 June 2003 Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1936
   paragraph 26(e)

Related Public Rulings (including Determinations)
Taxation Ruling IT 2639
Taxation Ruling TR 92/15

ATO Interpretative Decisions overturned by this decision
ATO ID 2002/565

Keywords
Allowances vs reimbursements
Income
Carer payments

Business Line:  Business and Personal Taxes Centre of Expertise

Date of publication:  19 December 2003

ISSN: 1445-2782