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Edited version of your private ruling
Authorisation Number: 1012563867421
Ruling
Subject: Assessability of prize money
Questions and answers:
1. Does the prize money constitute assessable income?
No.
2. Does the prize money constitute assessable income?
No.
This ruling applies for the following period
Year ended 30 June 2013
The scheme commences on
1 July 2012
Relevant facts and circumstances
You were the recipient of an award and you won a competition.
Both the award and competition resulted in you being awarded prize money.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Reasons for decision
A prize or gift will be assessable income:
· if it is income in the ordinary sense of the word (ordinary income), or
· if the provisions of the tax law include it as assessable income (statutory 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 of gift donor
· the motive of the prize or gift donor (though this factor is rarely decisive in itself)
· 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 income but are included as assessable income by provisions of the tax law.
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.
In your case, you won an award and a competition and were awarded prize money.
The cash prizes are not remuneration for services you have provided as an employee. You were not relying on winning the prizes to provide for your regular maintenance.
The prizes you received are considered a windfall gain and do not form part of your assessable income.
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