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Ruling

Subject: prize money

Question

Is the share of prize money you received assessable income?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You are a sole trader and produce your business income from several customers.

You were contracted to a franchisee company sporting team to provide specific services.

Your income is earned from providing these services and not from playing the sport.

During the period that you were providing your services, the sporting team won a competition.

The prize money won by the sporting team was distributed amongst everyone in the company.

You received an amount of the prize money for creating a happy environment and your positive attitude.

The prize money was given to you voluntarily and the motive of the prize giver was altruistic.

You only provided services to the franchisee company, and said company was not the prize giver.

You contend that you didn't play the sport so you did not influence the changes of winning the competition.

You contend that the money was not a common incident of your occupation and you did not rely on the prize money for regular maintenance of living as you had income from clientele and wages.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5(1),

Income Tax Assessment Act 1997 section 6-10 and

Income Tax Assessment Act 1997 section 15-2(1).

Reasons for decision

Subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a taxpayer includes income according to ordinary concepts, referred to as ordinary income. 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 provision 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.

A prize or gift will be assessable income if it is income in the ordinary sense of the word, or if the provisions of the tax law include it as assessable income. 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, consideration of the circumstances is necessary and various factors need to be taken into account, including:

· 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

In your case, the share of prize money you received was for your positive attitude and creating a happy environment. You have received the prize money in relation to your employment for the sporting team. A connection exists between your employment and the prize money. Therefore, the prize money you received is considered assessable income for the year ended 30 June 2011.