Edited version of private ruling

Authorisation Number: 1011896326416

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Ruling

Subject: Incentive payments

Question

Do the incentive payments you receive under a government program form part of your assessable income?

Answer:

Yes.

This ruling applies for the following period

Year ended 30 June 2010
Year ended 30 June 2011
Year ending 30 June 2012
Year ending 30 June 2013

The scheme commenced on

1 July 2009

Relevant facts and circumstances

You employ workers.

You received incentive payments under a government program regarding their employment during the 2009-10 and 2010-11 financial years.

You expect to receive incentive payments under the government program in the 2011-12 and 2012-13 financial years.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 51-10

Reasons for decision

Summary

The incentive payments you receive under the government program form part of your assessable income as they relate to your business activities. The payments do not fall within the exemption provisions of the taxation legislation.

Detailed reasoning

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

Ordinary income has generally been held to include three 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.

Proceeds from carrying on a business are income according to ordinary concepts and are included in assessable income.

You receive payments under a government program for employing certain people.

The relevant government department's website states that the incentive payments are not paid until certain eligibility criteria are met.

Taxation Ruling TR 2006/3 discusses the taxation treatment of government payments to industry (GPI) to assist the recipient to continue, commence or cease business.

Paragraph 12 of TR 2006/3 states that a GPI to assist with business operating costs or liabilities is ordinary income in the hands of the recipient and is assessable under section 6-5 of the ITAA 1997 in the financial year in which it is derived.

At paragraph 37, TR 2006/3 provides the following example of a payment to assist with employing an apprentice:

A business is eligible to apply for a government payment to assist with the initial cost to the business of employing an apprentice. A payment to an employer as a financial incentive to take on an apprentice or continue to employ an apprentice is received in the ordinary course of the business. As such, it is ordinary income and assessable under section 6-5 [of the ITAA 1997].

Your situation is similar to the above example. Thus it is considered that the payments you receive under the government program were received as part of the ordinary course of your business.

Therefore the payments are considered to be ordinary income and assessable under section 6-5 of the ITAA 1997.

Exempt income

An amount may be considered ordinary income but is not included in your assessable income due to the operation of a specific section of the legislation which exempts the amount from tax.

Section 51-10 of the ITAA 1997 provides that the following government payments in relation to employing people are exempt from tax:

a payment made under the Commonwealth Rebate for Apprentice Full-Time Training Scheme (the CRAFT Scheme) where the payment is for an apprentice who commenced working for the employer prior to 1 January 1998

· a payment known as the Apprenticeship Wage Top-Up

· a bonus for the early completion of an apprenticeship

· a payment under the program known as Skills for Sustainability for Australian Apprentices, and

· a payment under the program known as Tools for Your Trade (within the program known as the Australian Apprenticeships Incentives Program).

The incentive payments you receive are either not paid under the programs specifically mentioned above or you do not receive the particular payment referred to.

As such, the incentive payments you receive are not exempt from tax and are included in calculating your assessable income for the financial year.