Edited version of your written advice

Authorisation Number: 1012757117076

Ruling

Subject: Monthly payment

Question

Is the monthly payment ordinary assessable income?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2015

The scheme commenced on

1 July 2014

Relevant facts

You live in city A.

You conduct a business from your property.

You were approached by entity B about the compulsory acquisition of your property.

Entity B also requested an agreement with you for access to the property to conduct site surveys over the land.

An agreement was consented to and signed by you.

Entity B offered you a payment per month for the duration of the surveys, expected to be several months. It was made clear to you that any agreement would be separate from the acquisition offer and without prejudice to any possible future proceedings.

Accessing the land does not mean that the land will be acquired by entity B.

Where you suffer loss in relation to the above, you may be entitled to compensation.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5.

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 the ordinary income they 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.

In Scott v. FC of T (1966) 14 ATD 286, Windeyer J expressed the view that whether or not a particular receipt is income depends upon its quality in the hands of the recipient. Regard must be given to the full circumstances in which the payment is received.

The following guidelines for determining whether a loss or outgoing is of a capital nature have been set down by the High Court in Sun Newspapers Ltd. and Associated Newspapers Ltd. v. Federal Commissioner of Taxation (1938) 5 ATD 23; 5 ATD 87; 61 CLR 337: 

• the expenditure is related to the business structure itself, that is, the establishment, replacement or enlargement of the profit yielding structure rather than the money earning process, or

• the nature of the advantage has lasting and enduring benefit, or

• the payment is 'once and for all' for the future use of the asset or advantage rather than being recurrent and ongoing.

Although these guidelines relate to expenses, the principles are relevant for income receipts as well.

In your case:

• the payments are periodic, being paid monthly,

• you agreed that the relevant entities could access your land to conduct surveys,

• the payments are income from your property,

• the quantum of the payment is not merely a nominal amount to cover your costs or inconvenience of giving the relevant entities the right to enter the property,

• the payments are not a once and for all payment,

• the payments do not provide an enduring benefit, and

• the payment is not a pre-determined lump sum paid out as instalments.

It is acknowledged that the payments do not form part of your daily business activities or you entered into the agreement to make a profit.

You refer to the payments as being a windfall gain. A windfall gain generally results from winning a prize, a lottery or any other game of chance and is not assessable. However your payments are not like a prize and are not regarded as a windfall gain. We acknowledge your specific circumstances and the fact that the payments are not instigated by you, however the payments relate to you granting access to your property.

After considering your full circumstances, it is considered that the monthly payments received under the agreement are more akin to rental income and are income earned from your property. The fact that the payments may be only for several months or a relatively short period, does not change the nature of the payment. Therefore the income is assessable as ordinary income under subsection 6-5(2) of the ITAA 1997.