Edited version of your written advice

Authorisation Number: 1012971054643

Date of advice: 18 February 2016

Ruling

Subject: prize money

Question and Answer

Is your prize money assessable?

No.

This ruling applies for the following period(s)

Year ended 30 June 2016

The scheme commences on

1 July 2015

Relevant facts and circumstances

You are an Australian resident taxpayer.

You are a member of a profession.

You entered a worldwide advertising competition in a foreign country.

The shortlisted finalists win $X each and the final winner wins a further $X.

The winner's advertisement will be broadcast in the foreign country.

You were one of the short-listed finalists, for which you received prize money of $X.

You were not the final winner and, consequently, received no further prize money.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Reasons for decision

Section 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that your assessable income includes income according to ordinary concepts.

Generally speaking, a receipt will be income according to ordinary concepts if it is a receipt arising out of a taxpayer's employment or business activities.  This will be so even if the receipt is not directly related to any service provided by the recipient to the donor (FC of T v Dixon (1952) 86 CLR 540).

However, a windfall gain or a receipt that is a mere gift will not constitute income according to ordinary concepts.

The question is whether the competition prize is a product of the individual's income-earning activities or is a personal award.  If the award is attributable to the personal qualities of the individual, it is a gift and therefore not assessable income.  In some situations, this may be the case notwithstanding that the award is made in respect of achievements related to the individual's income-earning activities. 

Taxation Ruling IT 167 provides that where the skills exercised to win a competition are acquired through a taxpayer's occupation and a degree of the skill is needed to win the competition, it can be seen that the prize money received will be assessable.

In Case S17 (1968) 18 TBRD it was held that a TV contestant was to be assessed on his winnings on the basis that the competition required the exercise of skill and ability and resulted in substantial cash prizes. The requirement to exercise such skills and abilities distinguishes the professional from the amateur and turns what would otherwise be seen as a past time into a money-making activity.

In the Canadian case MNR v Watt 66 DTC 5212 the taxpayer was a professional architect employed as a lecturer at a university and entered into a competition sponsored by the central mortgage and housing corporation for the design of a large housing development. The taxpayer received $4,000 for being one of five finalists selected to participate in a run-off competition. The taxpayer submitted further drawings and was awarded first prize of $15,000. The taxpayer was then told that a contract covering further services would be paid on a daily basis to a maximum of $10,000. It was held that both amounts were assessable.

In your case you entered a competition which involved submitting ideas for a commercial advertisement.

The competition was open to the general public and was worldwide. It was not limited to members of your profession.

The skills needed and used to submit your entry do not have the relevant connection with your occupation. As such the prize money you received in relation to the first stage of the competition, that is, being shortlisted, is not assessable.

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