Edited version of your written advice

Authorisation Number: 1051358485465

Date of advice: 13 April 2018

Ruling

Subject: Income tax - gifts and voluntary payments

Question

Are amounts received by the school from the Government Department for the Relevant Program, and payable to teachers as Instructor Recognition Awards (IRA), subject to PAYG withholding under subdivision 12-B of the Taxation Administration Act 1953 (TAA 1953)?

Answer

No. There is no requirement to withhold PAYG amounts from payments made under the Instructor Recognition Awards scheme.

This ruling applies for the following period:

1 July 2017 to 30 June 2018

Relevant facts and circumstances

The School allows its premises to be used by participants in the Relevant Program. The Government Department funds certain Instructor Recognition Awards (IRA) payments to school teachers who supervise and deliver the Relevant Program. The School receives the IRA amounts from the Government Department as an intermediary and is instructed to disburse the funds to the teachers who are involved in supervision and delivery of the program. Although the teachers are members of School staff, the Government Department pays the amounts wholly in recognition of the contribution made by adult leaders and instructors in facilitating access to outdoor activities, sport and community building.

The amount is only payable once. The income is not characterised by regularity. In Scott v FCT (1966) 117 CLR 514 a distinction was drawn between gifts and amounts paid for services rendered. The receipts are not recurring in nature and are one-off amounts.

Eligibility criteria include that the individual has provided services in a voluntary capacity which is not the Relevant instructor’s full-time or part-time paid employment as well as having eligible service as a volunteer instructor for six or ten years respectively.

Relevant legislative provisions

Income Tax Assessment Act 1997

Section 6-5

Section 15-2

Taxation Administration Act 1953

Schedule 1

Subdivision 12-B

Section 12-35

Reasons for decision

Subsection 6-5(1) of the ITAA 1997 defines assessable income as including income according to ordinary concepts (ordinary income).

More specifically, section 15-2 of the ITAA 1997 provides that the assessable income of a person shall include

‘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’

There are a number of factors which can assist in determining whether a particular receipt is ordinary income. These include:

● whether the payment is the product of any employment, services rendered, or any business ( FC of T v. Harris 80 ATC 4238; (1980) 10 ATR 869)

● the quality or character of the payment in the hands of the recipient ( Scott v Federal Commissioner of Taxation (1966) 117 CLR 514; (1966) 10 AITR 367; (1966) 14 ATD 286)

● the form of the receipt, that is, whether it is received as a lump sum or periodically (Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540; (1952) 5 AITR 443; (1952) 10 ATD 82 ( Dixon's Case )), and

● the motive of the person making the payment. Motive, however, is rarely decisive as in many cases a mixture of motives may exist (Hayes v. Federal Commissioner of Taxation (1956) 96 CLR 47; (1956) 6 AITR 248; (1956) 11 ATD 82).

A frequent characteristic of income receipts is an element of periodicity, recurrence or regularity, even if the receipts are not directly attributable to employment or services rendered (FC of T v Dixon (1952) 86 CLR 540 and FC of T v Blake 84 ATC 4661).

However, periodicity, recurrence or regularity is not always essential for an amount to be income. For example, the proceeds of an isolated transaction, even if received as a lump sum, may be income (FC of T v Myer Emporium Ltd 87 ATC 4363), while instalments of a capital sum, even though received regularly from one source, are not income. Equally, an unsolicited lump sum payment which is unlikely to be repeated is generally not income according to ordinary concepts (FC of T v Harris 80 ATC 4238), while lump sum damages will nevertheless be assessable where they are compensation for losses of an income nature only.

Whether a voluntary payment is assessable income was considered in Dixon's Case.

In holding that the amount was assessable income Dixon CJ and Williams J held that four factors were relevant:

● the payments were regular and periodical

● the payments arose out of circumstances attending the taxpayer's war service

● the payments formed part of the receipts that the taxpayer depended upon for regular expenditure for himself and his dependants, and

● the payments were made for that purpose.

Relevant instructors carry out their activities on a voluntary basis and are not employees of the Government Department. Accordingly, there is no expectation of monetary reward for services rendered.

The payments are unrelated to the Relevant instructors’ employment duties with the School and do not form part of the salary or wages which are payable by the school.

The School has received the payments merely as an intermediary and is under an obligation to pay the amounts to the teachers who are Relevant instructors.

As the payments to the Relevant instructors do not form part of their salary or wages, there is no requirement for the School to withhold PAYG amounts.

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