Edited version of private advice

Authorisation Number: 1051684386208

Date of advice: 22 May 2020

Ruling

Subject: Income - assessable prize

Question

Is the prize money you received assessable income under section 6-5 or section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were awarded a Prize in 20XX. The Prize is awarded across several categories in the Creative Arts. The amount you received was approximately $XXXX US dollars.

The mission of the founder of the award was to award prizes to call attention to literary achievement and provide writers with the opportunity to focus on their work independent of financial concerns.

The prize is open to English-language writers at all stages of their careers from anywhere in the world, so long as they have met an initial criteria regarding works published or performances produced.

Writers can be nominated for a body of work or for outstanding promise.

Awards are made by nomination. Individuals cannot apply.

Writers are not made aware if they have been nominated and nominators are asked not to inform nominees of their nominations.

Several prizes are awarded each year. Several winners per category are chosen from each category following the finalists being submitted by the prize juries.

The prize is funded by an endowment left to XXXX University by XXXX. Interest earned on the endowment funds all aspects of the prize.

Winners are required to accept the prize in person and participate in a multi-day campus literary festival surrounding the prize ceremony. There are no other requirements.

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 10-5

Income Tax Assessment Act 1997 Section 15-2

Reasons for decision

Summary

The prize you received is not assessable income under section 6-5 or section 6-10 of the ITAA 1997.

Detailed reasoning

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 taxpayer'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)).

However, windfall gains which result from winning a prize, a lottery or any other game of chance are not assessable. In determining whether a prize or gift is ordinary income, the courts have established that consideration of the whole of the circumstances is necessary and that the following factors need to be taken into account:

·         how, in what capacity, and for what reason the recipient received the prize or gift (Squatting Investment Co Ltd v. Federal Commissioner of Taxation (1953) 86 CLR 570, (1953) 5 AITR 496; (1953) 10 ATD 126 (Squatting Investment case)

·         whether the prize or gift is of a kind which is a common incident of the recipient's calling or occupation (Scott v. Federal Commissioner of Taxation (1966) 117 CLR 514; (1966) 10 AITR 367; (1966) 14 ATD 286 (Scott's case)

·         whether the prize or gift is made voluntarily

·         whether the prize or gift is solicited (Hayes v. Federal Commissioner of Taxation (1956) 96 CLR 47; (1956) 6 AITR 248; (1956) 11 ATD 68 (Hayes' case) and Scott's case)

·         whether the prize or gift can be traced to gratitude engendered by some service rendered by the recipient to the prize or gift donor (Squatting Investment case)

·         the motive of the prize or gift donor (though this factor is rarely decisive in itself) (Hayes' case); and

·         whether the recipient relies on the prize or gift for regular maintenance of themselves and any dependants (Dixon's case ) and FC of T v. Blake (1984) 75 FLR 315; (1984) 15 ATR 1006; 84 ATC 4661).

·         how, in what capacity, and for what reason the recipient received the prize or gift (Squatting).

In your case, the prizeis open to English-language writers from anywhere in the world, so long as they have satisfied an initial criteria in relation to literary works produced.

Your prize is not a common incident of your occupation. It is not received because of your employment. Rather, it is received in recognition of your literary achievements.

The awarding of your prize was made voluntarily by XXXX Prizes. Recipients are unable to nominate themselves and therefore you were unable to solicit for the receipt of the prize.

The Award was instituted by XXXX to assist writers to focus on their creative endeavours without having to be concerned about financial struggles and to allow them to maintain a degree of financial independence.

You did not rely on the receipt of the prize money for your regular maintenance.. It was a one-off award, received with no expectation that it would recur. Your personal circumstances such as whether you were suffering financial hardship were not considered by the nominators. As the award amount was paid in addition to any regular income you may receive it is accepted that you did not rely on it for your regular maintenance.

Statutory income

Section 6-10 of the ITAA 1997 includes in assessable income amounts that are not ordinary income. These amounts are statutory income. A list of the statutory income provisions can be found in section 10-5. That list includes a reference to section 15-2 of the ITAA 1997.

Subsection 15-2(1) of the ITAA 1997 provides 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 or services rendered by you.

The prize was not received in accordance with any employment or services rendered. Although there was a criteria that you were required to meet before being eligible for the prize, the awarding of the prize is not associated with any particular outcomes you are required to achieve or any services you are required to provide. It is therefore considered that the prize money is not provided in respect of any employment or services you have rendered. It is therefore not assessable under section 15-2 of the ITAA 1997.

After considering all of the above factors, it is considered that the prize money you have received is not assessable income under section 6-5 or section 6-10 of the ITAA 1997.

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