ATO Interpretative Decision

ATO ID 2004/513 (Withdrawn)

Income Tax

• This ATO ID is withdrawn because it contains a view in respect of a provision of the Income Tax Assessment Act 1936 that does not apply after the 1996-1997 income year. Despite its withdrawal, this ATO ID continues to be a precedential ATO view in respect of decisions for income years up to, and including, the 1996-1997 income year. See ATO ID 2014/44, which reflects the same view in respect of the replacement or rewritten provision, for decisions for income years after the 1996-1997 income year.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is a commission paid to the taxpayer for acting as the executor of a deceased estate included in the taxpayer's assessable income?

Decision

Yes. A commission paid to the taxpayer for acting as the executor of a deceased estate is included in the taxpayer's assessable income as it is a payment within the meaning of paragraph 26(e) of the Income Tax Assessment Act 1936 (ITAA 1936).

Facts

The taxpayer was appointed as executor and trustee under a will.

The taxpayer received an executor's commission for services they performed as executor and trustee of the deceased estate.

The taxpayer did not ask for and did not expect to receive the commission.

Reasons for Decision

Section 6-5 of the Income Tax Assessment Act 1997 (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.

Ordinary income has generally been held to include three categories:

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income from rendering personal services

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income from property, and

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income from carrying on a business.

Paragraph 3 of Taxation Ruling IT 2639 explains that 'income from personal services' is:

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:

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are earned

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are expected

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are relied upon, and

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have an element of periodicity, recurrence or regularity.

The taxpayer may be said to have earned the executor's commission as it related directly to the services they performed. It is not clear however that the taxpayer could be said to have expected or relied upon the payment nor has the payment any element of recurrence or regularity. In these circumstances it is arguable whether the payment is income according to ordinary concepts and assessable under section 6-5 of the ITAA 1997.

However, 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 and are also included in assessable income.

Paragraph 26(e) of the ITAA 1936 provides that the value of all allowances, gratuities, compensations, benefits, bonuses and premiums allowed, given or granted in respect of, or for or in relation directly or indirectly to, any employment of a taxpayer or services rendered by them is included in assessable income.

The courts have consistently indicated that paragraph 26(e) of the ITAA 1936 is not limited to employment situations and that it can apply to payments for services rendered in the absence of an employer/employee relationship (FC of T v. Cooke and Sherden 80 ATC 4140; (1980) 10 ATR 696, FC of T v. Holmes 95 ATC 4476; (1995) 31 ATR 71; and Smith v. Federal of Commissioner of Taxation (1988) 164 CLR 513; 87 ATC 4883; (1987) 19 ATR 274).

The payment here is a payment of the type covered by paragraph 26(e) of the ITAA 1936 as it can be said to be a benefit granted in respect of the services rendered by the taxpayer as the executor of the deceased estate.

Accordingly, a commission paid to an executor or trustee of a deceased estate in respect of or for or in relation directly or indirectly to services rendered by them as executor or trustee would be caught by paragraph 26(e) of the ITAA 1936.

Therefore, the commission paid to the taxpayer for acting as executor of a deceased estate is included in the taxpayer's assessable income under paragraph 26(e) of the ITAA 1936.

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1997
   section 6-5
   section 6-10

Case References:
FC of T v. Cooke and Sherden
   80 ATC 4140
   (1980) 10 ATR 696

Keywords
Commission income
Executors
Trustees

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  25 June 2004

ISSN: 1445-2782