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Edited version of your private ruling
Authorisation Number: 1012595702288
Ruling
Subject: Income
Question 1
Does the money received for stick raking on the land proximate to the water management pond constitute assessable income?
Answer
Yes.
Question 2
Does the compensation received for dead livestock form part of your assessable income?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts and circumstances
You carry on grazing and pastoral activities on land leased from the landholders.
You own all livestock grazed on the land.
Entity Z have entered into conduct and compensation agreements with the landholders to carry out various activities on the land.
During the 2012-13 financial year, Entity Z paid you:
· for stick raking (the removal of debris) which was performed by equipment owned by and staff employed by you, and
· compensation for dead livestock found trapped in a pit associated with their activities.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 70-10
Income Tax Assessment Act 1997 Section 70-115
Reasons for decision
Summary
The amounts you received from Entity Z for stick raking and the dead livestock form part of your assessable income in the year in which they are received.
Detailed reasoning
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources 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.
Stick raking payment
You have received a payment for stick raking. Whilst this was a one-off event (and payment) it is considered that the payment is ordinary income as it was a payment for services you provided to Entity Z which was both earned and expected.
Therefore, the payment for the stick raking forms part of your assessable income.
Compensation for dead livestock
An amount paid as compensation for the loss of trading stock forms part of your assessable income as either ordinary income under section 6-5 of the ITAA 1997 or section 70-115 of ITAA 1997 as compensation for lost trading stock.
Section 70-10 of ITAA 1997 includes 'livestock' in its definition of trading stock.
Whilst the receipt of compensation payments for dead livestock cannot be said to be an ordinary part of your business operations, the payment does replace the sale price of the livestock which would be considered proceeds from carrying on a business.
Therefore, the compensation payment received for the dead livestock forms part of your assessable income.