Edited version of private advice

Authorisation Number: 1051792415230

Date of advice: 19 January 2021

Ruling

Subject: Individuals who receive amounts from uploading videos on YouTube

Question 1

Will the Commissioner consider the amounts received by the taxpayer from YouTube to be a non-assessable windfall gain amount?

Answer

No.

Question 2

Are the amounts received by the taxpayer from YouTube assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20xx

Year ended 30 June 20xx

Year ended 30 June 20xx

Year ended 30 June 20xx

The scheme commences on:

In the year beginning 1 July 20xx

Relevant facts and circumstances

You have advised:

You have a passion for technology and its evolution.

You share your videos because of the personal enjoyment and satisfaction you receive from sharing your keen interest and passion with others.

You have an official website linked to your YouTube channel.

Your video clips run for an average time of 5 to 10 minutes and you currently have a large number of YouTube channel subscribers.

In 20xx you started receiving monthly payments from YouTube after you agreed to through an opt-in monetization process through Google AdSense, to allow media advertising on your YouTube channel.

You have advised us of your total advertising receipts received from Google Adsense relating to these activities in each relevant financial year.

The amounts you receive fluctuate significantly each month. You have not made any plans to maintain or increase the current level of payments you receive from YouTube. You have not yet planned how much time and effort you would spend on this activity for the current financial year.

There is no stand-alone agreement between you and YouTube for the monies that you receive and the current online Terms of Service applying to users can be found on the YouTube website.

You have not derived any other types of revenue (directly or indirectly) from uploading your videos onto YouTube or sell other products elsewhere.

Since 20xx you have incurred certain expenses relating to your activities.

As you have treated your activities as a hobby, you have not kept all necessary receipts for the above expenses.

Your expenses relating to these activities have been funded from your personal savings.

You have not kept any records relating the use of electricity, phone, internet or depreciating assets.

You do not undertake any travel relating to these activities.

You are self-taught and have not taken any courses to learn how to produce YouTube videos.

The amount of time and effort you spend on creating and uploading YouTube videos varies depending on your other commitments however you plan to continue to upload videos on a frequent basis.

Both your educational activities and part-time employment took up most of your time during the relevant financial years and limited time was spent on creating and uploading YouTube videos.

You usually spend around 3 to 4 hours per week creating the videos.

You do not have a dedicated office space and you use a room at home to work on these activities.

You do not have any business plan to actively build your reputation or public profile as a YouTuber.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 405-5

Income Tax Assessment Act 1997 section 405-25

Income Tax Assessment Act 1997 section 995-1

Summary

The payments you receive from YouTube are assessable income according to ordinary concepts under section 6-5 of the Income Tax Assessment Act 1997.

Detailed reasoning

Windfall gains

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. Also, a receipt that is a mere gift will not constitute income according to ordinary concepts. For example, if an award is attributable to the personal qualities of an individual, it is generally a gift and therefore not assessable income.

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).

The Commissioner's view on the assessability of money received by way of awards and prizes is set out in Taxation Rulings IT 2145, IT 2474 and IT 167.

IT 2145 addresses BHP Awards for the Pursuit of Excellence which are made to Australians who have made outstanding contributions to the pursuit of excellence in their particular fields of endeavour and who may not yet be recognised for their achievements. The ruling states:

Although undoubtedly it will be the case that awards sometimes will be made in respect of achievements directly related to a winner's vocation, business, etc., the nature of the award is that of a personal windfall or gain not having the qualities of income. Such awards therefore, will not be assessable income in the hands of recipients.

The winners of the BHP Awards for the Pursuit of Excellence are chosen from six categories which are claimed to cover every occupation and pursuit so that entry is open to all, whether by nomination of others or self nomination. The judging of the awards is by special panels including experts in the particular category and anyone who has achieved excellence will be eligible in one category or another except for employees of BHP.

IT 2474 deals with the assessability of payments received under the Military Skills Award program. Military Skills Awards are 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.

When considering prizes won by professional sportspersons, IT 167 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.

It is clear from the above that prizes will not constitute assessable income if they are received as a result of the personal qualities of the recipient. However, prizes that relate to a taxpayer's income producing activities will be assessable under section 6-5 of the ITAA 1997.

In your case, the amounts you receive from YouTube relate to your income producing activities. The payments were not made to you voluntarily as you elected to begin featuring advertising in your videos through the opt-in monetization process with YouTube. The amounts received are a reward for providing services relating to your income producing activities in the capacity as a performing artist or special professional on YouTube.

Accordingly, the amounts you receive from YouTube are assessable income under section 6-5 of the ITAA 1997.

Ordinary Income

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

Ordinary income has generally been held to include 3 categories, namely income from rendering personal services, income from property and income from carrying on a business.

Other characteristics of income that have evolved from case law include receipts that:

•         Are earned

•         Are expected

•         Are relied upon, and

•         Have an element of periodicity, recurrence or regularity.

You earn advertising revenue through Google AdSense for your YouTube videos which is generated when advertisements are placed in your videos by Google. This is based on a share of advertising revenue and the number of views your videos receive.

Your YouTube channel is an income producing asset and is considered income derived from property.

The payments you receive are expected (and perhaps relied upon) as your entitlement to the payment arises under the agreement you elected with YouTube. The payments also have the elements of recurrence and regularity as they are paid monthly.

Income averaging for special professionals

Section 405-5 of the ITAA 1997 applies a special rate of income tax to a taxpayer's above-average special professional income. The Income Tax Rates Act 1986 generally sets the specific rate so that the amount of income tax on the top four-fifths of the taxpayer's above-average special professional income is effectively four times what would be paid on the bottom one-fifth of that income at basic rates.

You produce, design, edit, script, voice over, film and act as presenter in the videos for the purpose of uploading onto your YouTube channel. Section 405-25 of the ITAA 1997 can apply to individuals who earn income as a performing artist or production associate for videos they upload on YouTube. A special professional defined in subsection 405-25(1) of the ITAA 1997, includes a performing artist or production associate.

Subsection 405-25(3) of the ITAA 1997 provides that that a performing artist includes someone who performs or appears in or on a film. Film is defined in subsection 995-1(1) of the ITAA 1997 as an aggregate of images, or of images and sounds, embodied in any material. This definition is wide enough to capture YouTube videos.

Conclusion

Based on the facts you provided, we consider you are receiving income from your services as a YouTuber, therefore the income is assessable in the year it is derived. Accordingly, the amounts you receive from YouTube are assessable as ordinary income under subsection 6-5(2) of the ITAA 1997.

You are entitled to claim the allowable deductions in earning this income under section 8-1 of the ITAA 1997 where the record keeping requirements have been met. You must be able to substantiate your claims for deductions with written evidence if the total amount of deductions you are claiming is greater than $300.

Evidence can include bank statements or credit card statements which show the amount that was paid, when and who it was paid to, as well as other documents which outline the nature of the goods or services provided.

Income averaging for special professionals can apply to your circumstances.

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