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Edited version of your private ruling

Authorisation Number: 1012567511800

Ruling

Subject: Income - grants

Question

Is the grant paid to you by the government considered assessable income?

Answer

Yes

This ruling applies for the following periods

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commenced on

1 July 2012

Relevant facts and circumstances

You are a professional engaged as an employee.

You have received a grant under a government program, for the purpose of completing advanced rural skills training.

The grant comprises two payments, the first being on acceptance into an accredited training post and another payment following successful completion of the training.

Successful applicants are required to:

Failure to successfully complete the training within the prescribed period may result in a request to refund the payments.

Relevant legislative provisions

Income Tax Assessment Act Section 6-5

Income Tax Assessment Act Section 15-2

Reasons for decision

Subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that 'Your assessable income includes income according to ordinary concepts, which is called ordinary income'. Subsection 6-5(2) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

An incentive bonus comes within the meaning of ordinary income. An incentive 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). Dean's case also found that the payment need not be paid by your employer.

In your case you received payments under the program for undertaking additional training so you can provide more comprehensive services in rural and remote areas.

The payments are considered a bonus you derive as a result of your income earning activity as they are paid to encourage you to undertake additional training in order to expand services in your remote locality.

It follows that for the purposes of section 6-5 of the ITAA 1997 the grant constitutes ordinary assessable income.

Alternatively, section 15-2 of the ITAA 1997 would apply if it could be concluded that the grant was paid in relation directly or indirectly to employment.

The leading cases in connection with this question are Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540; (1952) 5 AITR 443; (1952) 10 ATD 82 and Scott v. Federal Commissioner of Taxation (1966) 117 CLR 514; (1966) 10 AITR 367; 14 ATD 286. In both cases it was decided that the phrase 'an indirect consequence of employment' was not an open ended concept. Rather, there must still be a connection between the payment and the employment such that the receipt 'is in a relevant sense a product' of the employment.

Although the grant payments were not paid to you by your employer, it is considered the grant payments were paid in relation to your employment. The grants are targeted at a particular employment group and are intended to support the development of the professional skills of person's within that group. That is, if it were not for your employment in a rural area you would not be eligible to receive the grant.

As there is a fundamental connection between the receipt of the grant payments and your employment, the payment is also assessable under section 15-2 of the ITAA 1997.

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