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Ruling

Subject: Exemption of income

Question

Is the Home Purchase Assistance Scheme (HPAS) payment that you received from your employer assessable income?

Answer

No

This ruling applies for the following period:

Year ending 30 June 2013

The scheme commences on:

1 July 2012

Relevant facts and circumstances

You are an Australian resident for tax purposes.

You have been deployed overseas.

You have received a payment from your employer which you used to purchase a home.

You have received the payment while you were serving overseas on eligible service.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 26AD,

Income Tax Assessment Act 1936 Section 26AD(1),

Income Tax Assessment Act 1936 Section 26AD(2),

Income Tax Assessment Act 1997 Section 6-5,

Income Tax Assessment Act 1997 Subsection 6-15(2),

Income Tax Assessment Act 1997 Section 11-15

Income Tax Assessment Act 1997 Section 15-2

Income Tax Regulations 7A.

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. However, if an amount is exempt income, it is not included in the assessable income of a taxpayer.

Ordinary income has generally been held to include income from rendering personal services; income from property and income from carrying own a business.

Paragraph 3 of Taxation Ruling IT 2639 defines income from personal services as income that an individual taxpayer earns predominantly as a direct reward for their personal efforts by the provision of services, exercise of skills or the application of labour.

Other characteristics of ordinary income that have evolved from case law include receipts that:

· Are earned

· Are expected

· Are relied upon; and

· Have an element of periodicity, recurrence or regularity.

The one off lump sum payment you received was to assist you in purchasing your home. It was not a payment made as direct reward for the services you performed.

The payment in question was expected, and may be relied upon. However, it cannot be said that it was 'earned' as it was not paid as a direct reward for the services performed. The payment was made in a one off lump sum so it cannot be said that it has an element of periodicity, recurrence or regularity.

We do not consider that the elements of expectation and reliance in this case are sufficient to characterise the payment as ordinary income assessable under subsection 6-5(2) of the ITAA 1997. The payment is also not income or property and income from carrying on a business.

Statutory income

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 call statutory income.

Under section 15-2 of the ITAA 1997 the value of all allowances, gratuities, compensation, benefits, bonuses and premiums allowed, given or granted directly or indirectly in respect of employment or services rendered is included in assessable income.

The payment is a benefit provided to you in respect of your employment and is therefore assessable income for the purposes of section 15-2 of the ITAA 1997.

Exempt income

However, subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not assessable income.

Section 11-15 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list is section 23AD of the ITAA 1936 which deals with pay and allowances received by Australian Defence Force (ADF) members performing certain overseas duty.

Subsection 23AD(1) of the ITAA 1936 provides that the regulations may declare that duty with a specific organisation, in a specific area outside Australia and after a specific day, is eligible duty for the purposes of the exemption.

The payment will fall for consideration under section 23AD of the ITAA 1936 if it falls within the meaning of the term pay and allowances.

The term pay and allowances is not defined in section 23AD of the ITAA 1936 or elsewhere, but it may reasonably be constructed to refer to salary, wages, bonuses, benefits and allowances received by an ADF member in their capacity of an employee.

As such, the payment is considered an allowance within the term pay and allowances for the purposes of section 23AD of the ITAA 1936 as you received the payment as an allowance in your capacity as an employee.

Earned while on eligible duty

While it will usually be the case that section 23AD of the ITAA 1936 will apply to the pay and allowances earned by an ADF member from eligible duty, there is no requirement in section 23AD of the ITAA 1936 that the pay and allowances be connected to that eligible duty.

Rather, section 23AD of the ITAA 1936 only requires that the pay and allowances are earned by an ADF member while either:

· There is certificate in place declaring that the member is on eligible duty, or

· The regulations have declared such duty to be eligible duty for the purposes of section 23AD of the ITAA 1936.

The payment is derived at the time it is received. Therefore, you are considered to have earned the payment at the time you received it.

At the time you received the payment you were deployed on active duty. Regulation 7A of the Income Tax Regulations 1936 provides that this deployment was eligible duty for the provisions of section 23AD of the ITAA 1936.

Therefore, in your case, the payment that you have received while serving overseas on eligible duty will be exempt under section 23AD of the ITAA 1936 and will not be assessable under section 6-10 of the ITAA 1997.

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