Disclaimer This edited version will be removed from the Database after 30 September 2025. If you believe the issues detailed in this edited version warrant retention in an alternative form, email publicguidance@ato.gov.au This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private ruling
Authorisation Number: 1011521049984
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.
Ruling
Subject: assessability of income
Question 1
Is the prize money assessable income?
Answer
No.
Question 2
Is the regular payment assessable income?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2011
The scheme commenced on
1 July 2009
Relevant facts and circumstances
You won a competition.
You received prize money.
As well as the prize money you were also entitled to receive a regular payment.
The total of the payments will not exceed a fixed amount per year.
There is no specified maximum period to receive the regular payment.
The right to receive the regular payment is not transferable under any circumstances.
You acknowledged and agreed to conditions which include provide services.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 6-10
Reasons for decision
The prize money
A prize or gift will be assessable income if it is:
- income in the ordinary sense of the word (ordinary income), or
- the provisions of the tax law include it as assessable income (statutory income).
Under subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997), ordinary income means income 'according to ordinary concepts'.
Generally, a gift or prize is regarded as a personal windfall gain and not as ordinary income unless the taxpayer has received the prize or gift because of, in respect of, or in relation to any income-producing activity of the taxpayer.
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
- whether the prize or gift is of a kind which is a common incident of the recipient's calling or occupation
- whether the prize or gift is made voluntarily
- whether the prize or gift is solicited
- whether the prize or gift can be traced to gratitude engendered by some service rendered by the recipient to the prize of gift donor
- the motive of the prize or gift donor (though this factor is rarely decisive in itself), and
- whether the recipient relies on the prize or gift for regular maintenance of themselves and any dependants.
Under section 6-10 of the ITAA 1997 assessable income also includes statutory income. Statutory income is amounts that are not ordinary income but are included as assessable income by provisions of the tax law.
Subsection 15-2(1) of the ITAA 1997 provides that the value to the taxpayer of all gratuities and benefits given or granted to them in respect to, or for, or in relation directly, or indirectly to, any employment will be included in their assessable income.
There must be a connection between the payment and the employment. The receipt must be a product of the employment.
In your case you entered a competition with a chance of winning a cash prize. You were selected as the winner. The cash prize is not remuneration for services you have provided as an employee. You were not relying on winning the prize to provide for your regular maintenance.
The prize money you received as part of the competition is a windfall gain and does not form part of your assessable income.
The regular payment
Your assessable income includes income according to ordinary concepts, which is called ordinary income (section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)). The legislation, however, does not define the expression income according to ordinary concepts.
The courts too, have declined to give the expression a definitive meaning, though various general indicators of whether a payment is income have evolved from case law, including whether or not the payment is:
- the product of any employment or personal services rendered pursuant to a contract,
- expected or relied upon, and
- received periodically or otherwise connected to the receipt of such payments.
The presence or absence of any single indicator is not necessarily determinative as to whether or not a particular payment is income.
As a general rule, where a taxpayer participates casually in a competition and wins a prize, the prize is not assessable. A windfall gain of this nature does not have the character of income.
On the other hand where a taxpayer receives regular payments and is required to participate in all promotional activities then the payment is assessable income.
In your case you receive a regular payment. This payment is a periodical payment which you receive for an indefinite period.
The regular payment you receive is considered to be assessable income and forms part of that income and must be included in your tax return.