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Ruling

Subject: prize money

Question

Are you assessable on prize money?

Answer: Yes

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2010

Relevant facts and circumstances

In the 2010-11 financial year you won a prize.

It was a requirement of potential contestants that they have experience in a particular field and needed to show proof of previous work.

You have qualifications and are employed in a related field to the subject.

You were successful in winning and received prize money.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5.

Reasons for decision

Section 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that your assessable income includes income according to ordinary concepts.

Generally speaking, a receipt will be income according to ordinary concepts if it is a receipt arising out of a taxpayer's employment or business activities.  This will be so even if the receipt is not directly related to any service provided by the recipient to the donor (FC of T v Dixon (1952) 86 CLR 540).

However, a windfall gain or a receipt that is a mere gift will not constitute income according to ordinary concepts.

The question is whether the competition prize is a product of the individual's income-earning activities or is a personal award.  If the award is attributable to the personal qualities of the individual, it is a gift and therefore not assessable income.  In some situations, this may be the case notwithstanding that the award is made in respect of achievements related to the individual's income-earning activities. 

Taxation Ruling IT 167 provides that where the skills exercised to win a competition are acquired through a taxpayer's occupation and a degree of the skill is needed to win the competition, it can be seen that the prize money received will be assessable.

In Case S17 (1968) 18 TBRD it was held that a TV contestant was to be assessed on his winnings on the basis that the competition required the exercise of skill and ability and resulted in substantial cash prizes. The requirement to exercise such skills and abilities distinguishes the professional from the amateur and turns what would otherwise be seen as a past time into a money-making activity.

In the Canadian case MNR v Watt 66 DTC 5212 the taxpayer was a professional architect employed as a lecturer at a university and entered into a competition sponsored by the central mortgage and housing corporation for the design of a large housing development. The taxpayer received $4000 for being 1 of 5 finalists selected to participate in a run-off competition. The taxpayer submitted further drawings and was awarded first prize of $15000. The taxpayer was then told that a contract covering further services would be paid on a daily basis to a maximum of $10000. It was held that both amounts were assessable.

When considering prizes won by professional sportspersons, IT 167 states in paragraph 5: "A prize or award won in circumstances where it is an incident of the taxpayer's income producing activities (for example, a 'best player' award won by a professional footballer in a newspaper competition) or where it is part of the proceeds of a business conducted by the taxpayer (for example, a prize won by an author in a literary competition) would have the character of income.

In your case you were successfully selected to take part in a competition. The competition was not open to the general public but to individuals with experience in a particular field. In order to enter the competition you had to provide proof of previous work.

The skills needed and used during the competition can be seen to have the relevant connection with the earning of your assessable income. It is therefore determined that there is a direct link between the earning of your assessable income and the receipt of the prize money. The payment is therefore assessable.