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Edited version of private ruling

Authorisation Number: 1011557887425

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Ruling

Subject: Special professionals income averaging

Is the payment you received for your computer software subject to the income averaging scheme?

Yes.

This ruling applies for the following period:

1 July 2009 to 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You operated a business where you wrote computer software for various clients.

You volunteered to work for a community group.

You wrote a software program to assist the group with their rostering. You received progress payments during the writing of the program.

The group entered into an agreement with you.

Under the agreement you granted the group a non-exclusive licence to use, communicate, reproduce, publish, adapt and modify the software program.

The group does not have the right to commercialise the software program.

You retain the intellectual property rights to the software program.

You received a lump sum payment for entering into this agreement.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 405-5

Income Tax Assessment Act 1997 Section 405-20

Reasons for decision

Summary

A computer programmer is classified as an author for the purposes of the special professionals averaging provisions of the income tax legislation.

The payment you received from the community group is included as taxable professional income in your income tax return and the special professional averaging provisions applied in calculating your tax liability.

Detailed reasoning

An income averaging scheme applies to certain classes of 'special professionals'. The scheme, which is contained in Division 405 of the Income Tax Assessment Act 1997 (ITAA 1997) is designed to prevent such taxpayers from being pushed into higher tax brackets when income from their professional work in a year fluctuates above the average income from such work.

The classes of special professionals subject to the income averaging scheme are: authors of literary, dramatic, musical or artistic works, inventors, performing artists, production associates and sportspersons.

The expression 'author' is a technical term from copyright law. Taxation Determination TD 93/65 states a computer program is a literary work. Thus, a computer programmer is classified as an author for the purposes of the income averaging scheme.

The income averaging scheme only applies to the taxable professional income derived from the taxpayer's professional activities.

The taxable professional income is calculated as assessable professional income less expenses associated with earning that income.

Subsection 405-20(7) of the ITAA 1997 includes in the assessable professional income any income a taxpayer derives as royalties or otherwise:

In your case, you have written a computer software rostering system. Under an agreement you have granted a community group a non-exclusive licence to use, communicate, reproduce, publish, adapt and modify the program but not to commercialise it.

The payment you received is considered to fall within subsection 405-20(7) of the ITAA 1997. That is, it is a payment relating to the literary work of which you are an author.

Therefore, the payment you received is included in determining your assessable professional income and is subject to the income averaging scheme.

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