Edited version of private ruling

Authorisation Number: 1011826214998

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Ruling

Subject: Exemption of payments from the PAYG system for reimbursement of expenses to lawn bowls players

Question 1

Is the reimbursement of expenses paid to lawn bowls players in district pennant matches exempt from the PAYG system?

Answer

Yes

This ruling applies for the following period

Income year ended 30 June 2011

Income year ended 30 June 2012

Income year ended 30 June 2013

Income year ended 30 June 2014

Income year ended 30 June 2015

The scheme commenced on

1 July 2010

Relevant facts

The Club provide payments, called Pennant Retainers (the payment), to a select number of lawn bowlers who play in the Pennant Teams for the Zone or District matches each year, a maximum of 12 players.

Each Pennant season is 10 games excluding semis, finals and trials.

To be eligible for the payment, the player must have played at least four games at the Zone or District level within the last two years.

The players do not sign a contract. They are not professional players and are only playing for the love of the game and be able to socialise with the other club members.

The payment goes towards reimbursement of out of pocket expenses incurred during the financial year to compensate the players in their participation in the pennant matches for the club.

The expenses cover travel, laundry and equipment expenses (bags, bowls, cloths, grippo, shoes).

Previously in a certain year, the club was given a ruling on these payments that provided a player did not receive amounts in excess of a stipulated amount per week and the total amount paid to any one player does not exceed the stipulated amount per annum, then the payments will not be treated as wages.

Now, they request a review of the ruling, as they wish to increase the stipulated amount higher to be exempt from wages. This is due to their estimation of 2.7% per annum for inflation since 1993 would yield a new amount (CPI application would yield slightly more).

Half of the Pennant Retainers will be provided to the chosen players at the beginning of the pennant season and the balance at the end of the season, providing that each Zone or District player has played at least 80% of the total games. The Reserve players must have played at least 25% of the total number of pennant games at the designated level.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-5(1)

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Subsection 15-2(1)

Income Tax Assessment Act 1997 Section 15-70

Reasons for decision

Issue 1

Question 1

A payment or other benefit received by a sportsperson is assessable income if it is:

· income in the ordinary sense of the word (ordinary income); or

· an amount of benefit that through the operation of the provisions of the tax law is included in assessable income (statutory income)

Under subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997), an amount is assessable income if it is income according to ordinary concepts (ordinary income).

In determining whether an amount is ordinary income, the courts have established the following principles:

· what receipts ought to be treated as income must be determined in accordance with the ordinary concepts and usages of mankind, except in so far as a statute dictates otherwise;

· whether the payment received is income depends upon a close examination of all relevant circumstances; and

· whether the payment received is income is an objective test.

Relevant factors in determining whether an amount is ordinary income include:

· whether the payment is the product of any employment, services rendered, or any business;

· the quality or character of the payment in the hands of the recipient;

· the form of the receipt, that is, whether it is received as a lump sum or periodically; and

· the motive of the person making the payment. Motive, however is rarely decisive as in many cases a mixture of motives may exist.

Section 6-10 of the ITAA 1997 includes in assessable income amounts that are not ordinary income; these amounts are statutory income.

The relevant provisions of the ITAA 1997 are:

Subsection 15-2(1), which provides that the assessable income shall include '... the value to you of all allowances, gratuities, compensations, benefits, bonuses and premiums provided to you in respect of ,or for or in relation directly or indirectly to, any employment of or services rendered by you ...';

Section 15-70, which provides that the assessable income shall include '... a reimbursement mentioned in section 22 of the Fringe Benefits Tax Assessment Act 1986 (about exempt car exempt car expense payment benefits) that, but for that section, would be a fringe benefit provided to you'.

The Commissioner considers that sections 15-2 and 15-70 will not apply to match payments but need to be considered when determining whether any allowances or reimbursements are assessable income.

Taxation Ruling TR 92/15 explains the difference between an allowance and a reimbursement for the purposes of determining whether a payment is assessable income under the ITAA 1997, or whether that payment is a fringe benefit under the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986). Paragraphs 2 and 3 of TR 92/15 states:

2. A payment is an allowance when a person is paid a definite predetermined amount to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to expend the allowance

 

3. A payment is a reimbursement when the recipient is compensated exactly (meaning precisely, as opposed to approximately), whether wholly or partly, for an expense already incurred although not necessarily disbursed. In general, the provider considers the expense to be its own and the recipient incurs the expenditure on behalf of the provider. A requirement that the recipient vouch expenses lends weight to a presumption that a payment is a reimbursement rather than an allowance. A requirement that the recipient refunds unexpended amounts to the employer adds further weight to that presumption. A further indication of a reimbursement is where the recipient is required to refund unexpended amounts to the provider.

Payments to sportspersons that do not fall within any of the above items are often made in the absence of any legal obligation of the payer to do so. Such payments are referred to as voluntary payments.

Amounts that are generally not assessable are those received from the pursuit of a pastime or hobby.

Taxation Ruling TR 1999/17 discusses the benefits received by individuals from their involvement in sport, that is, whether in business or otherwise. The ruling sets out the Commissioner's view as to whether these benefits, either made with or without a legal obligation to the sportsperson is considered to be assessable income.

Benefits include payments received as salaries, allowances and cash prizes as well as those received in kind as non-cash benefits. These can be made either under a legal obligation by the payer or in the absence of same as voluntary payments.

The assessable income of a sportsperson includes:

· payments received from, in respect of, or in connection with employment;

· payments or other benefits received for, in respect of, or in connection with services provided; and

· amounts of a revenue nature or other benefits received, including prizes and awards from carrying on a business of participating in sport.

TR 1999/17 provides a description of voluntary payments at paragraphs 45 to 47 as follows:

Often voluntary payments are paid as financial grants. Such payments are not a product of or received in respect of any employment, services rendered or any business. They are paid to a sportsperson by another party when the sportsperson has attained a specific standard. Sportspersons selected to receive a grant possess personal qualities and athletic abilities that show they are in a class of individuals able to pursue sporting excellence.

The sportsperson enters into the arrangement with the other party who undertakes to provide payments to the sportsperson on a periodic and regular basis while the sportsperson continues to perform at the required standard. Often the arrangement expressly states that payments are made at the 'absolute discretion' of the payer.

The arrangement often contains clauses governing conduct and behaviour of the sportsperson which if breached could result in the termination of the agreement.

Hobby or Pastime

In contrast, where a sportsperson's activities constitute a pastime or hobby rather than an income-producing activity, money and other benefits received from the pursuit of that pastime or hobby is not assessable income, nor are the expenses allowable deductions.

Participation in activities generating pastime or hobby receipts is a social or personal pursuit of a non-commercial nature. Pastime receipts are not intended to, nor do they usually, cover expenses. Even regular receipts obtained from a pastime or hobby are still characterised as receipts from a pastime or hobby and accordingly are not assessable income. A receipt that is an incident of a pastime or hobby would also not be assessable, even if it arises from the provision of a service. However, the nature of such a receipt or receipts is relevant in determining whether the pastime has become a business. The receipt or receipts could indicate, for example: a commercial activity; an intention to make a profit from the activity; or an increase in either the size and scale of the activity or the degree of repetition or regularity of the activity.

Conclusion

The player's participation in the pennant matches is a social or personal pursuit of a non-commercial nature. The purpose of the payment is to encourage members of the community to participate in local sporting activities by subsidising that participation. The individual player's primary motivation for playing in the pennant matches would be their love of lawn bowling and a desire to contribute to the communities in which the game is played. In addition, participation also provides the opportunity to maintain and enjoy the social camaraderie of association membership.

Therefore, based on current ATO policy, unless we consider the players to be in the business of playing, the stipulated payments for the Zone or District players and the Reserves receives under this arrangement will be treated as a reimbursement of expenses incurred by them and will therefore not be included in their assessable income. Thus, exempt from the Pay-As-You-Go system.

The sporting activities for members who receive payments of no more than the stipulated amount per week are considered to constitute a pastime or hobby and therefore, the match payments received from the pursuit of that pastime or hobby are not assessable income.

Match Payments Exceeding the Stipulated Amount Per Week

Where match payments exceed the stipulated amount per week, a detailed analysis of each player's circumstances is required. It is recognised that for some players who receive payments exceeding the stipulated amount per week, the payment will be incidental to a pastime and not assessable income.

Players who receive match payments exceeding the stipulated amount per week should discuss their circumstances with their taxation adviser or the Australian Taxation Office.