Edited version of private ruling

Authorisation Number: 1011752882859

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Ruling

Subject: Assessability of income

Question

Is your share of prize money assessable income to you?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You have been working in a particular industry for more than five years.

Prior to your current employment you played a professional sport for a number of years. However since retirement you have not had involvement in the professional sport, but are still a keen follower of the game.

In the recent year a new tournament was held, and the players were current professional sportspersons.

An amount of prize money was payable to the first, second, third and possibly fourth placed teams.

Each of the teams in the tournament had one or two team managers. The team managers included professional sportspersons of various codes, a businessman and other retired sportspersons.

You and the team coach shared the role of team manager. Your responsibility for the team included:

Pre-tournament:

· assist the team coach in choosing the players for the team

· obtaining sponsorship to cover team costs such as entry fees, airfares and accommodation for the players, coach and yourself

· managing the team funds, including opening a bank account for the transactions of the team

· payment of entry fees and submitting the entry forms for the tournament

· organising the itinerary for the players, and

· hiring and driving the mini-bus.

During the tournament:

· sometimes completing the laundry but the players mostly looked after their own uniform

· driving the hire bus, taking the players to training in the two days prior to the tournament. If several players arrived or left the airport at once, you would drive to the airport, otherwise players got a taxi. You drove players to and from the tournament, and

· attending games and supporting the team.

Post-tournament:

· to comply with the tournament requirements, an agreement was established on how the prize money would be shared should the team win any. In accordance with that agreement, money was deposited into the bank account which you distributed according to the agreement.

The possibility of winning prize money was not the motivating factor for you to participate in the tournament. It was an opportunity for you to catch up with old sports associates and meet with other sporting greats. It was also an opportunity to be involved in a new event which may not happen again. If you had not been asked to be a team manager you would have most likely gone to the event as spectator, or otherwise viewed the coverage on television.

Your team won the tournament and received an amount of prize money. You received a percentage of the prize money for your involvement in the tournament.

The team players were from different locations and flew into city A two days prior to the tournament starting, and completed some training sessions as organised by the team coach.

You did not play in or coach the team in the tournament.

Other than your share in the winnings, you did not receive any payment for your role as team manager.

You believe that no other team members would have received other income to participate in the tournament.

Reasons for decision

A prize or gift will be assessable income if it is:

o income in the ordinary sense of the word (ordinary income), or

o the provisions of the tax law include it as assessable income (statutory income).

Under section 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:

o how, in what capacity, and for what reason the recipient received the prize or gift

o whether the prize or gift is made voluntarily

o whether the prize or gift is solicited

o whether the prize or gift can be traced to gratitude engendered by some service rendered by the recipient to the prize or gift donor

o the motive of the prize or gift donor (through this factor is rarely decisive in itself), and

o whether the recipient relies on the prize or gift for regular maintenance of themselves and any dependants.

Statutory income

Under section 6-10 of the ITAA 1997 assessable income also includes statutory income. Statutory income is amounts that are not ordinary assessable income.

Subsection 15-2(1) of the ITAA 1997 provides that the value to the taxpayer of all gratuities and benefits given 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.

Your circumstances

In your case, you are an ex-professional sportsperson who is a keen follower of the game. You were asked to be a team manager of a team competing in a tournament with a chance of winning a cash prize.

The cash prize you won is not remuneration for services you have provided as an employee. Nor were you relying on winning the prize to provide for your regular maintenance.

The prize money was made voluntarily and not solicited by you.

The prize money is considered a windfall gain, and is not assessable as ordinary or statutory income in the year it was received.