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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of private ruling

Authorisation Number: 1011820321114

Ruling

Subject: Income Spreading

Question:

Are you able to spread the declaration of income over the duration of a 6 year work project?

Answer: No.

This ruling applies for the following period:

Year ended 30 June 2011.

Year ended 30 June 2012.

The scheme commenced on:

1 July 2010.

Relevant facts:

You are a consultant with a company.

You are paid on a 'success fee' basis.

The time from the release of the project to final payment to you will be 6 years.

The project was issued by an Organisation in July 2006.

In July 2006 you were engaged by the company as a consultant.

After company proposals were received and evaluated, the project was withdrawn in 2007 and re-issued in October 2008.

The company won the contract with the organisation which commenced from September 2009.

The contract involves progress payments for various milestones in delivery of the project deliverables.

You are payed as the progress payments are made to the company by the organisation.

You received one payment in early 2009.

You are due to receive a payment by mid May 2011.

You will receive subsequent payments in the 2011-2012 financial year.

Your arrangement with the company remains in force until the final payment of your fees.

You believe that your situation is amenable to income spreading under Subsection 405-25 (1) of the Income Tax Assessment Act 1997 in that your arrangement with the company will have lasted over 6 financial years although your payment will be over only two financial years.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Subsection 6-5(4).

Income Tax Assessment Act 1997 Subsection 405-25(1).

Reasons for decision

Derived Income

Subsection 6-5(4) of the Income Tax Assessment Act 1997 (ITAA 1997) states that the taxpayer is taken to have received the amount when it is applied or dealt with in any way on the taxpayer's behalf or as the taxpayer directs.

Non-business income arising from the provision of knowledge or exercise of skill is assessable on a receipts basis. An individual derives income when they receive it (or is deemed to receive it).

Taxation Ruling TR 98/1 discusses that income is assessable for taxation purposes on a receipts basis. Salary, wages or other employment remuneration are assessable on receipt even though they relate to a past or future income period.

Above-average special professional income

Significant fluctuations can occur in the professional incomes of authors, inventors, performing artists, production associates and sportspersons. To lessen the impact of fluctuations on marginal tax rates, special tax rates apply if professional income is above the average for a special professional in an income year.

Subsection 405-25(1) of the ITAA 1997 does not apply to your facts as you do not meet the definition of a special professional as you are not:

Conclusion

According to subsection 6-5(4) of the ITAA 1997 the income you have received and are due to receive from 2009 onwards, relating back to when you commenced consultancy work in July 2006, is assessable in the income year when received by you.

You are not eligible for the special tax rates that apply if your professional income is above your average, as you are not a special professional.

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