Edited version of your written advice

Authorisation Number: 1012830241319

Date of advice: 29 June 2015

Ruling

Subject: Grants

Question

Are the grants assessable income?

Answer

No.

This ruling applies for the following period

Year ending 30 June 2015

The scheme commenced on

1 July 2014

Relevant facts

You are self-employed in one area who is working towards a professional career in another area.

You have received two grants in order to undertake a study tour.

The tour will enhance your skills for your future career which you hope will lead to professional work in Australia.

While you have not yet worked professionally in your field, you have studied and done unpaid work in this area.

One grant will be used for your lessons and other skills development.

The other grant will be used to help cover the costs of your travel, accommodation and meals while studying.

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 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. Federal Commissioner of Taxation (1956) 96 CLR 47; (1956) 6 AITR 248; (1956) 11 ATD 68 (Hayes' case)

In determining whether a prize or gift is ordinary income, the courts have established that consideration of the whole of the circumstances is necessary and that the following factors need to be taken into account:

• how, in what capacity, and for what reason the recipient received the prize or gift (Squatting Investment Co Ltd v. Federal Commissioner of Taxation (1953) 86 CLR 570, (1953) 5 AITR 496; (1953) 10 ATD 126 (Squatting Investment case)

• whether the prize or gift is of a kind which is a common incident of the recipient's calling or occupation (Scott v. Federal Commissioner of Taxation (1966) 117 CLR 514; (1966) 10 AITR 367; (1966) 14 ATD 286 (Scott's case)

• whether the prize or gift is made voluntarily

• whether the prize or gift is solicited (Hayes' case and Scott's case)

• whether the prize or gift can be traced to gratitude engendered by some service rendered by the recipient to the prize or gift donor (Squatting Investment case)

• the motive of the prize or gift donor (though this factor is rarely decisive in itself) (Hayes' case); and

• whether the recipient relies on the prize or gift for regular maintenance of themselves and any dependants (FC of T v. Blake (1984) 75 FLR 315; (1984) 15 ATR 1006; 84 ATC 4661).

Although your grant may not be regarded as a prize or gift, the principles are relevant in determining whether your grant is assessable income.

The Commissioner's view on the assessability of money received by way of an award is set out in Income Tax Ruling IT 2145 Income tax: BHP awards for the pursuit of excellence - whether assessable income. The ruling states: "Although undoubtedly it will be the case that awards sometimes will be made in respect of achievements directly related to a winner's vocation, business, etc., the nature of the award is that of a personal windfall or gain not having the qualities of income. Such awards therefore, will not be assessable income in the hands of recipients."

It is clear from the above that prizes or awards will not constitute assessable income if they are received as a result of the personal qualities of the recipient. However, prizes that relate to a taxpayer's income producing activities will be assessable under section 6-5 of the ITAA 1997.

In your case, you are not in business in the relevant area. You applied for the grants to help cover the costs of your lessons as well as the associated travel, accommodation and meal expenses incurred while on your study tour. The receipt of the grants is not related to your income producing activities. You are not providing services or skills in order for you to receive the grant money.

The lump sum grants you received are not earned by you as they does not relate to services performed. The grants are one-off payments and thus do not have an element of recurrence or regularity. Although the payments can be said to be expected, and perhaps relied upon, this expectation does not arise from any personal services performed.

In your circumstances, the payments do not have the character of ordinary income. The grants are to assist you with your future career and are not derived as part of your ordinary income producing activities. Therefore the grants are not assessable under section 6-5 of the ITAA 1997.

Furthermore, the grant money received is not included in your assessable income under any other taxation provision.

It follows that as the grant money is not assessable income, no deductions are allowed for the associated expenses incurred.