Edited version of your private ruling

Authorisation Number: 1012438730475

Ruling

Subject: Assessable income

Question

Is the cash prize awarded to you assessable income?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You were a joint winner of an award.

The awards are presented annually to reward excellence in your field.

Entry to the awards is open to all whether by self-nomination or nomination by others.

You were nominated by your employer for the award.

The winner is selected by a panel of independent judges.

The receipt of prize money is not a common incident of your occupation.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Subsection 6-5(1)

Income Tax Assessment Act 1997 Subsection 15-2(1)

Reasons for decision

Summary

As the prize money you received does not constitute either ordinary or statutory income it is not assessable income.

Detailed reasoning

A prize or gift will be assessable income if it is:

· income in the ordinary sense of the word (ordinary income), or

· the provisions of the tax law include it as assessable income (statutory income).

Ordinary income

Under subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997), ordinary income means income 'according to ordinary concepts'.

Generally, a gift or prize is regarded as a personal windfall gain and not as ordinary income unless the taxpayer has received the prize or gift because of, in respect of, or in relation to any income-producing activity of the taxpayer.

In determining whether a prize or gift is ordinary income, the courts have established that consideration of the whole of the circumstances is necessary and that the following factors need to be taken into account:

· how, in what capacity, and for what reason the recipient received the prize or gift

· whether the prize or gift is of a kind which is a common incident of the recipient's calling or occupation

· whether the prize or gift is made voluntarily

· whether the prize or gift is solicited

· whether the prize or gift can be traced to gratitude engendered by some service rendered by the recipient to the prize or gift donor

· the motive of the prize or gift donor (through this factor is rarely decisive in itself), and

· whether the recipient relies on the prize or gift for regular maintenance of themselves and any dependants.

Statutory income

Under section 6-10 of the ITAA 1997 assessable income also includes statutory income. Statutory income is amounts that are not ordinary assessable income.

Subsection 15-2(1) of the ITAA 1997 provides that the value to the taxpayer of all gratuities and benefits given or granted to them in respect to, or for, or in relation directly, or indirectly, to any employment will be included in their assessable income.

There must be a connection between the payment and the employment. The receipt must be a product of the employment.

Application to your circumstances

You were nominated by your employer for an award with a chance of winning a cash prize. The cash prize was not remuneration for services you have provided as an employee. You were not relying on winning the prize to provide for your regular maintenance.

The prize money was made voluntarily and not solicited by you.

The prize money is a windfall gain. Therefore, the prize money is not assessable as ordinary or statutory income.

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