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Edited version of your private ruling
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Ruling
Subject: Assessable income
Question
Is the payment made by the government considered assessable income?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2012
The scheme commences on:
1 July 2011
Relevant facts and circumstances
You are working in a remote area.
You qualified for and received a government incentive payment.
To be eligible for the payment, 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.
The government agency administers the program and the payment is made via entity A.
You are not employed by entity A and they do not provide you with a payment summary.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5 and
Income Tax Assessment Act 1997 Section 15-2
Reasons for decision
Subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) 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) (Dean's Case). Dean's Case also found that the payment need not be paid by your employer.
In your case you received a grant 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 of the ITAA 1997 the payment constitutes ordinary assessable income.
The payment is not exempt income under any provision of ITAA 1997.The fact that PAYG has not been deducted from your payment does not mean your payment is exempt income.