Edited version of your written advice

Authorisation Number: 1012745362287

Ruling

Subject: Grant payment

Question

Is the grant assessable as ordinary income?

Answer

Yes.

This ruling applies for the following periods

Year ending 30 June 2014

Year ending 30 June 2015

The scheme commenced on

1 July 2013

Relevant facts

You are a self-employed writer and producer. You will produce an artistic work. You are the writer and producer for the project.

You applied for a grant from a government body to cover development expenses for the project to be undertaken in the 2014-15 financial year.

You do not intend to make a profit from this venture, only to allow artistic talents to be encouraged and to showcase the project to potential venues.

The grant was paid before the end of the relevant financial year before the costs of the project were to be incurred. The project commenced and will be completed during the subsequent financial year.

The budget approved by the government body identifies the specific cost areas on which the grant was to be applied. The costs include an amount allocated for your role in the project. You are to provide receipts for the expenses incurred for the project.

In the grant application, you stated that you were assuming the legal and financial responsibility for the grant and provided your ABN.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 15-10

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, 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.

A payment paid in consideration for the performance of services is generally income as highlighted in Hayes v FCT (1956) 96 CLR 47, 111 ALF 716.

The Commissioner's view on the assessability of government payments to industry are set out in Taxation Ruling TR 2006/3 Income tax: government payments to industry to assist entities (including individuals) to continue, commence or cease business.

As outlined in paragraph 12 of TR 2006/3, a government payment to industry to assist with business operating costs or liabilities is ordinary income in the hands of the recipient and is assessable under section 6-5 of the ITAA 1997 in the income year in which it is derived.

In your case, the receipt of the grant for the project is closely related to your usual income producing activities. You are providing services and skills for the project.

The payment received as outlined in the grant application is to assist with the costs of carrying out the project which forms part of your income earning activities. Part of the cost of the project includes an amount for your contribution. The payment is expected and relied upon as you had to apply for the grant.

In your circumstances, the payment has the character of income according to ordinary concepts. It is derived as part of your ordinary income producing activities. The grant is to assist you with the costs of the project and is ordinary income in your hands. Therefore the grant is assessable under section 6-5 of the ITAA 1997.

Please note that if the grant was not assessable as ordinary income, the grant would be assessable under section 15-10 of the ITAA 1997. Section 15-10 of the ITAA 1997 includes in assessable income, bounties and subsidies that you receive in relation to carrying on a business that are not assessable as ordinary income under section 6-5 of the ITAA 1997.