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Edited version of your written advice

Authorisation Number: 1012846409769

Date of advice 23 July 2015

Ruling

Subject: Whether various Government grants are assessable income

Question

Are Government Grants received by the entity assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following periods

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ending 30 June 2016

The scheme commenced on

1 July 2014

Relevant facts

The entity operates a business.

The entity receives various Government grants.

Grants are paid in consideration for the performance of services.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Reasons for decision

A payment or other benefit received by a taxpayer is included in their assessable income if it is income according to ordinary concepts.

Section 6-5 states, in part:

6-5(1) Your assessable income includes income according to ordinary concepts, which is called ordinary income.

6-5(2) If you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Although the expression 'income according to ordinary concepts' is not defined in the ITAA 1997, there is a substantial body of case law from which a number of factors have been drawn to determine whether an amount has the character of income according to ordinary concepts.

ATO policy concerning government payments to industry is set out in Taxation Ruling TR 2006/3 Income tax: government payments to industry to assist entities (including individuals) to continue, commence or cease business (TR 2006/3).

At paragraph 84, it provides that ordinary income generally falls within three categories:

Paragraph 83 of TR 2006/3 states a Government Payment to Industry (GPI) received by an entity to assist it to continue its existing business will be ordinary income of the recipient, assessable under section 6-5 or a bounty or subsidy received in relation to carrying on a business and assessable under section 15-10 except where the payment is for agreeing to give up or sell part of the profit yielding structure if the GPI is not assessable under any of these provisions, the recipient will need to consider whether there are CGT consequences.

Further, paragraph 85 of TR 2006/3 lists guidelines established from case law which are of assistance in determining the nature of a receipt.

One of the guidelines established by case law is a payment paid in consideration for the performance of services is generally income (Hayes v. FCT (1956) 96 CLR 47 & Reuter v. Federal Commissioner of Taxation (1992) 111 ALR 716)

In this case the entity receives GPI from various Governments to provide services as part of its business activities. GPI which the entity receives is considered income according to ordinary concepts therefore it is assessable under section 6-5 of the ITAA 1997.

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