Edited version of your written advice

Authorisation Number: 1051286198557

Date of advice: 22 September 2017

Ruling

Subject: Gold Travel Pass payment

Question 1

Is the payment received for the sale of your pass assessable income?

Answer

Yes.

Question 2

Is any part of the payment received for the sale of your pass assessable under the capital gains tax provisions?

Answer

No.

This ruling applies for the following period

Year ending 30 June 2017

The scheme commenced on

1 July 2016

Relevant facts

You were an employee for many years.

After several years of service you were entitled to a pass.

In July 2016 your employer offered to purchase all passes from their employees for an agreed amount.

You decided to sell your pass and received an amount.

This amount has been included in the gross income showing on your PAYG payment summary for the financial year ended 30 June 2017.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 15-2

Income Tax Assessment Act 1936 Section 108-5

Income Tax Assessment Act 1997 Section 118-20

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Generally speaking, a receipt will be income according to ordinary concepts if it is a receipt arising out of a person's employment, business activities or income producing 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 (Dixon’s case)).

An incentive bonus generally comes within the meaning of ordinary income. An incentive bonus is an additional reward payment derived in the capacity as an employee as a financial incentive to remain in 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.

Section 6-10 of the ITAA 1997 includes amounts of statutory income in assessable income, that is, amounts that are specifically listed as assessable income in Division 10 of the ITAA 1997. The provision applicable in your case is section 15-2 of the ITAA 1997.

Section 15-2 of the ITAA 1997 states that your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you. It is irrelevant to the operation of section 15-2 whether the bonus or other benefit is provided in the form of money or in some other form.

The Commissioner's view on the assessability of money received by way of awards, prizes and gifts is set out in Income Tax Rulings IT 2474, IT 167 and IT 2674.

IT 2474 Income tax: assessability of payments received under the Military Skills Award Programme discusses the awards made to successful participants in military skills competitions conducted in or between units in the Australian Regular Army and Army Reserve. For a member of the Australian Regular Army, participation in a military skills competition is regarded as part of his duties as an employee and the cash prizes are part of the pay and allowances arising from the performance of those duties. The cash prizes are therefore assessable income under section 6-5 of the ITAA 1997.

IT 167 Treatment for income tax purposes of radio & television competition prizes states in paragraph 5: "A prize or award won in circumstances where it is an incident of the taxpayer's income producing activities (for example, a 'best player' award won by a professional footballer in a newspaper competition) or where it is part of the proceeds of a business conducted by the taxpayer (for example, a prize won by an author in a literary competition) would have the character of income.”

Taxation Ruling IT 2674 Income tax: gifts to missionaries, ministers of religion and other church workers - are the gifts income? examines whether gifts or voluntary payments received by church workers are assessable income.

Whether a gift is assessable income depends on the character of the gift in the hands of the recipient. Consideration is necessary of the whole of the circumstances in which the gift is received. For example, the following factors need to be taken into account:

● How, in what capacity, and for what reason the recipient received the gift;

● Whether the gift is of a kind which is a common incident of the recipient's calling or occupation;

● Whether the gift is made voluntarily;

● Whether the gift is solicited;

● If the gift can be traced to gratitude engendered by some service rendered by the recipient to the donor, whether the recipient had already been remunerated fully for that service;

● The motive of the donor; and

● Whether the recipient relies on the gift for regular maintenance for themselves or any dependants.

If a worker receives a gift because of, in respect of, for or in relation to any income-producing activity of the worker, the gift is assessable income. However a personal gift received for personal reasons, where there is no connection between the receipt of the gift and any income-producing activity is not assessable income.

Although the above rulings and situations differ to your circumstances, the principles are relevant.

It is clear from the above rulings that payments will not constitute assessable income if they are received as a result of the personal qualities of the recipient. However, awards or benefits that relate to a person’s income producing activities will be assessable under section 6-5 of the ITAA 1997. That is, where an employee receives a benefit from their employer, the nexus between the payment and the employment would constitute income under ordinary concepts.

In your case, you were an employee for many years. The pass is paid because of your length of service. If you were not an employee, the pass and subsequent payment would not have been given. That is, the payment is received as a reward for your long service with your employer. The pass and associated payment relates to the employment services you have provided and is assessable income under section 6-5 of the ITAA 1997.

Capital gains

You make a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. A CGT asset is any kind of property or a legal or equitable right that is not property (subsection 108-5(1) of the ITAA 1997).

The inclusion of the cash payment on the sale of your pass as ordinary income does not mean that a CGT event does not happen. However, section 118-20 of the ITAA 1997 exists to ensure that amounts which are assessable income outside of the CGT provisions are not also taxed as capital gains.

Therefore, any capital gain made will be reduced to the extent of the amount already included as ordinary assessable income under section 6-5 of the ITAA 1997. In your case any capital gain made will be reduced to nil and therefore no amount is included as a capital gain on your tax return.

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