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Ruling

Subject: Assessability of Government Grants

Question 1

Is Grant A paid by the government considered assessable income?

Answer

Yes.

Question 2

Is Grant B paid by the government considered assessable income?

Answer

Yes.

Question 3

Is Grant C paid by the government considered assessable income?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Relevant facts and circumstances

The capacity in which you conduct your income earning activities is as an employee of your family trust which carries on the business.

You qualify for and receive three types of government grant:

Grant A

Grant B

Grant C

Grant A

To be eligible for Grant A, potential recipients must meet certain conditions. It is calculated with reference to a formula depending on the remoteness of the location(s) and the work load undertaken. It may be paid quarterly, however you have applied just once a year and received a payment based on a full calendar year.

Grants B & C

Medicare Australia make a payment of $X per day for a prescribed maximum number of days per annum for procedure up skilling. The grants are available to employees who work in certain remote areas.

Grant B is available for attendance at approved training and update courses.

Grant C is available if the employee undertakes certain categories of procedure. The payment is for attendance at approved training and update courses.

You attended courses in both these categories in the capacity of trainer.

You are not employed by Medicare Australia and they do not provide you with a payment summary.

Relevant legislative provisions

Income Tax Assessment Act 1997, Section 6-5

Income Tax Assessment Act 1997, Section 15-2

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA of the ITAA 1936 to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA of the ITAA 1936 applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA of the ITAA 1936, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: 'Part IVA: the general anti-avoidance rule for income tax'.

Reasons for decision

Unless otherwise stated all legislative references are to the Income Tax Assessment Act 1997 (ITAA 1997).

Question 1

Subsection 6-5(1) states that 'Your assessable income includes income according to ordinary concepts, which is called ordinary income'. Subsection 6-5(2) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

An incentive bonus comes within the meaning of ordinary income. An incentive bonus is an additional reward payment derived by you in your capacity as an employee as a financial incentive to remain in your employment (Dean & Anor v. Federal Commissioner of Taxation (1997) 78 FCR 140; (1997) 37 ATR 52; 97 ATC 4762) (Deans Case). Dean's case also found that the payment need not be paid by your employer.

In your case you received Grant A for undertaking your training in a rural or remote area. The payment amounts were based on your remote locality, eligible services provided and length of training. The payments are designed to reward and encourage individuals to continue to work in rural and remote areas of Australia.

The payments are considered a bonus you derive as a result of your income earning activity as they are paid to encourage you to continue working in your remote locality.

It follows that for the purposes of section 6-5 Grant A constitutes ordinary assessable income.

Note: This receipt could alternatively be considered assessable income under section 15-2 which is entitled 'Allowances and other things provided in respect of employment or services'. This section states that 'Your assessable income includes the value to you of all allowances, gratuities, compensation, 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…'

Questions 2 & 3

There are a number of provisions that deal with what constitutes assessable income. The most applicable provision to your circumstance is section 15-2 which includes in a person's assessable income all allowances provided in respect of, or for or in relation directly or indirectly to, any employment.

Taxation Ruling TR 92/15 discusses what would constitute an 'allowance'. Generally a payment is an allowance when it is a definite predetermined amount paid to cover an estimated expense.

The grants you received are considered to be allowances. They are paid at a fixed rate per day and are intended to cover various expenses associated with professional development activities.

Section 15-2 would therefore apply if it could be concluded that the grants are paid in relation directly or indirectly to employment.

The leading cases in connection with this question are Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540; (1952) 5 AITR 443; (1952) 10 ATD 82 and Scott v. Federal Commissioner of Taxation (1966) 117 CLR 514; (1966) 10 AITR 367; 14 ATD 286. In both cases it was decided that the phrase 'an indirect consequence of employment' was not an open ended concept. Rather, there must still be a connection between the payment and the employment such that the receipt 'is in a relevant sense a product' of the employment.

Although the grants were not paid to you by your employer, it is considered the grants were paid in relation to your employment. The grants are targeted at a particular employment group and are intended to support the maintenance and development of the professional skills of person's within that group. That is, if it were not for your employment in a rural area you would not be eligible to receive the grants, either as a course participant or in the capacity of trainer.

This connection between the payment of the grant and your employment is sufficient to conclude that both Grant B and Grant C are assessable income under section 15-2.