Edited version of private ruling

Authorisation Number: 1011544162511

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Ruling

Subject: Assessability of bonus payment

Question

Is the bonus payment you received to return to work included in your assessable income?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You received a bonus payment as an incentive for returning to the workforce.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5,

Income Tax Assessment Act 1997 Section 6-10 and

Income Tax Assessment Act 1997 Section 15-3.

Reasons for decision

Summary

The bonus payment you received is included in your assessable income as it is considered an inducement to return to work which falls under section 15-3 of the Income Tax Assessment Act 1997 (ITAA 1997).

Detailed reasoning

Section 6-5 of the ITAA 1997 provides that if you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income are also included in assessable income. These are called statutory income and are included as assessable income under provisions about assessable income. 

Section 15-3 of the ITAA 1997 is a provision about assessable income that provides that your assessable income includes an amount you receive under an arrangement that an entity enters into for a purpose of inducing you to resume working for, or providing services to, any entity.

The issue of inducements to enter employment was earlier considered in Pickford v FC of T 40 ATR 1078; 98 ATC 2268. In that case a potential new employer offered an amount to an individual to compensate the individual for capital gains on shares the individual would forego if they left their current employment. The amount was not considered to be a capital gain but rather to be an inducement to secure the employment services of the individual. The source of the payment was to be found in the service to be rendered in future by the individual. Therefore the receipt was held to be ordinary income at that time.

Since that decision, section 15-3 of the ITAA 1997 was enacted to specifically include return to work payments in an individual's assessable income. The Explanatory Memorandum to section 15-3 of the ITAA 1997 explains that the provision is a re-written provision that uses a definition of arrangement that include promises and undertakings in relation to entering employment.

In your case, you received a bonus payment to return to employment. The payment is an inducement to re-enter the workforce and falls within the scope of a return to work payment as provided in section 15-3 of the ITAA 1997. Accordingly, the incentive payment is included in your assessable income.

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