Edited version of private advice

Authorisation Number: 1052227652948

Date of advice: 12 March 2024

Ruling

Subject: Assessable income - derived

Question 1

Are the monthly rewards issued to you prior to your account being locked assessable when they were available for withdrawal?

Answer

Yes

Question 2

Are the monthly rewards issued to you after your account being locked assessable as they are not available for withdrawal?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

You are an investor, not a trader.

You first invested in the platform during the 20YY-YY financial year.

You made further investments in the platform in the 20YY-YY financial year.

The platform reports balances and profits in a foreign currency.

The platform paid out a variable percent reward monthly. You reinvested the rewards into the platform.

These rewards and all funds within the platform were available to be withdrawn at your discretion.

You made one withdrawal.

In the 20YY-YY financial year the platform locked all accounts on the platform and suspended the ability to withdraw from the platform without warning.

As of today's date, your account is still locked, and you are unable to withdraw from your account.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Reasons for decision

Summary

Monthly rewards from the platform are assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), when they are derived. Rewards received into your account prior to the account being locked have been derived by you and are assessable in the year they were derived. Rewards received after the account was locked will not become assessable until they are derived.

Detailed reasoning

Subsection 6-5(1) of the ITAA 1997 states that your assessable income includes income according to ordinary concepts, which is called ordinary income.

Subsection 6-5(2) of the ITAA 1997 states that if you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia during the income year.

Subsection 6-5(4) of the ITAA 1997 states in working out whether you have derived an amount of ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.

Chapter 4 of the Explanatory Memorandum to the ITAA 1997 provides that amounts received still need to have all the attributes of ordinary or statutory income before it is treated as such. You still need to have 'derived' the income.

Ordinary income has generally been held to include three categories:

•                    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.

If the income has characteristics of the four listed above, then it can be considered as ordinary income under section 6-5 of the ITAA 1997.

In your case, you invested in the platform, and you received rewards as a return on your investment, the receipt of the rewards is ordinary income under section 6-5 of the ITAA 1997.

It was noted in Commissioner of Taxes (SA) v Executor Trustee and Agency Co of South Australia Ltd (1938) 63 CLR 108, 154-5, with the assessment of income the object is to discover what gains have during the period of account 'come home' to the taxpayer. This establishes that for a receipt of ordinary income to be assessable under section 6-5 of the ITAA 1997 it must 'come home' to the taxpayer.

Where the rewards are locked to a trading platform, or inaccessible to you until a condition of release is met, the funds will not be derived until the condition of release is met and the funds are accessible or can be dealt with in any way, on your behalf, or as you direct.

Prior to the account being locked you were able to access the rewards and have them applied or dealt with in any way on your behalf or as you directed. Rewards that were received into your account and able to be withdrawn prior to your account being locked are assessable income to you and are to be reported as income in the year that they were credited to your account, as they were derived in that year.

Any rewards that were credited to your account after your account was locked, where you are not able to access them, or have them applied or dealt with in any way on your behalf or as you directed will not be assessable income until withdrawals are restored on the platform.

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