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Edited version of your private ruling
Authorisation Number: 1012149120674
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Ruling
Subject: Assessability of incentive payment
Question and answer
Is an incentive payment received required to be declared in the income year it is received?
Yes.
This ruling applies for the following periods:
Year ended 30 June 2011
Year ending 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
The scheme commenced on:
1 July 2010
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 received a lump sum payment from your employer.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1997 Section 59-30.
Reasons for decision
Subsection 6-5(2) 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.
A sign-on bonus comes within the meaning of ordinary income. A sign-on bonus is an additional reward payment derived by you in your capacity as an employee as a financial incentive to remain in your employment (Dean & Anor v. Federal Commissioner of Taxation (1997) 78 FCR 140; (1997) 37 ATR 52; 97 ATC 4762) (Deans Case). Deans case also found that the payment need not be paid by your employer.
You received an incentive payment from your employer.
Consequently, the payment is included in your assessable income in the income tax return the year you received it.
Please note:
In the event you are required to pay some of the payment back at a later date section 59-30 allows a taxpayer to seek an amended assessment for the year in which that income was originally included in their tax return.
Subsection 59-30(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that:
An amount you receive is not assessable income, and is not exempt income, for an income year if:
· you must repay it; and
· you repay it in a later income year; and
· you cannot deduct the repayment for any income year.
A taxpayer will only satisfy this requirement that they repay the amount, in relation to the amount of the instalments actually paid. For any amounts that are required to be paid, but as yet have not been, the requirement is not satisfied.
The first requirement is that the taxpayer must 'repay' the grant. The term repay is not defined in income tax legislation. It is appropriate therefore to look at the ordinary meaning of the term repay.
The Australian Oxford Dictionary, 1999, Oxford University Press, Melbourne, defines the term as 'pay back (money) ... make payment (to a person) ... make payment'. It follows that the term requires the actual transfer of money rather than merely a promise or requirement to make a payment in the future.
The taxpayer will only satisfy this requirement that they repay the amount, in relation to the amount of the instalments actually paid. For any amounts that are required to be paid, but as yet have not been, the requirement is not satisfied. Therefore these amounts are not treated as 'not assessable income' under section 59-30 of the ITAA 1997.
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