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Edited version of your private ruling
Authorisation Number: 1012536922651
Ruling
Subject: Timing of income
Question
Are you able to include your sponsorship fee as assessable income in the income year in which you complete the work to which the fee relates?
Answer
Yes
This ruling applies for the following periods:
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
Year ended 30 June 2017
The scheme commences on:
1 July 2011
Relevant facts and circumstances
You organise an annual event, for which the sole source of income is sponsorship income (as you do not sell tickets), from which you retain the net proceeds after paying relevant event costs and prize monies.
Due to their annual corporate marketing budgeting considerations, the sponsor arranges for you to invoice the sponsorship funds in the financial year prior to when the event is held and prior to when you incur the relevant expenses.
The expenses you incur include the payment of contractors for labour and equipment, who invoice you.
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) requires an amount of ordinary income to be brought to account as assessable income when it has been derived.
Taxation Ruling TR 98/1 is about the determination of income; receipts versus accruals. Paragraphs 44 to 46 of TR 98/1 provide where the income results primarily from the services rendered, or work performed by the taxpayer personally, it is generally assessable on a receipts basis. However, if the taxpayer relies on staff or equipment to produce income, this would indicate the income is not simply a reward for the provision of personal services by the taxpayer and that the earnings (accruals) method may be the appropriate basis for determining income in respect of the relevant year.
Taxation Ruling TR 93/11 is about when professional fees, accounted for on an accruals basis, are derived. Paragraphs 3, 8, 12 and 21 of TR 93/11 state:
The question of when professional fee income is derived…needs to be determined by reference to the facts of each case, and especially by reference to the terms of the contract or arrangement entered into between the professional person and the client.
A professional person will sometimes receive fee income in advance of the work to which it relates. If the contract or arrangement requires that the fee be paid in advance, the fee income is derived in the income year in which the professional person completes the work (or the part of the work) to which the fee relates. On the other hand, if the client simply pays early, the fee income is derived when a recoverable debt arises or would have arisen if the client had not paid early.
The Australian courts have held that income assessable on an accruals basis is 'derived'…when a recoverable debt is created such that the taxpayer is not obliged to take any further steps before becoming entitled to payment…. A fee is 'recoverable' in the relevant sense even if time to pay has been allowed…. An exception to the position that income is derived when a recoverable debt arises can apply if amounts are received or receivable in advance of goods being supplied or services being provided…(Arthur Murray (NSW) Pty Ltd v. FC of T (1965) 114 CLR 314; (1965) 14 ATD 98).
A firm of architects, the income of which is assessable on an accruals basis, requires a $750 up-front payment before commencing work on drafting plans. The fee income of $750 is derived in the income year in which the plans are completed.
In your case, it is appropriate your income is determined on an accruals basis since contractors invoice you for the provision of labour and equipment. As your contractual arrangements with your sponsor provide that your sponsorship fee be paid in advance, your sponsorship fee income is derived in the income year in which you complete the work (or the part of the work) to which the fee relates.
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