Edited version of your written advice

Authorisation Number: 1013040594482

Date of advice: 30 June 2016

Ruling

Subject: Income - literary prize - assessable

Question:

Is the cash prize awarded to you assessable income?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 2016

Year ending 30 June 2017

The scheme commenced on:

1 July 2015

Relevant facts

You were previously an historian focusing on social history.

You have written and had published fiction and non-fiction work.

You have retired from writing and have not published any work for a number of years.

You have recently been advised that you have been awarded an international prize.

You were awarded the prize in the category of fields that expand knowledge of former times.

There were other winners of the prize and you are to share equally the prize.

You are required to donate a portion of your prize money to post graduate students in their respective fields, thereby contributing to the community and fostering a new generation of scholars.

The Prize recognizes and encourages innovative and interdisciplinary research that cuts across traditional boundaries and paradigms. It aims to foster universal values of excellence, creativity, justice, democracy and progress and to promote the scientific, technological and humanistic achievements that advance and improve our world.

The prizes are granted to individuals or institutions with proven, exceptional, distinct excellence in the sciences, arts, humanities, public service and business, that have made and continue to make an outstanding contribution to humanity on the basis of merit, without discrimination of gender, race, religion, nationality, or political affiliation.

You receive a small amount of royalties from previous work.

You did not nominate yourself for the award.

You did not know you had been nominated for the award.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Subsection 6-5(1)

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Subsection 15-2(1)

Reasons for decision

A prize or gift will be assessable income if it is:

• income in the ordinary sense of the word (ordinary income), or

• the provisions of the tax law include it as assessable income (statutory income).

Ordinary income

Under subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997), ordinary income means income 'according to ordinary concepts'.

Generally, a gift or prize is regarded as a personal windfall gain and not as ordinary income unless the taxpayer has received the prize or gift because of, in respect of, or in relation to any income-producing activity of the taxpayer.

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

• whether the prize or gift is of a kind which is a common incident of the recipient's calling or occupation

• whether the prize or gift is made voluntarily

• whether the prize or gift is solicited

• whether the prize or gift can be traced to gratitude engendered by some service rendered by the recipient to the prize or gift donor

• the motive of the prize or gift donor (through this factor is rarely decisive in itself), and

• whether the recipient relies on the prize or gift for regular maintenance of themselves and any dependants.

Statutory income

Under section 6-10 of the ITAA 1997 assessable income also includes statutory income. Statutory income is amounts that are not ordinary assessable income.

Subsection 15-2(1) of the ITAA 1997 provides that the value to the taxpayer of all gratuities and benefits given or granted to them in respect to, or for, or in relation directly, or indirectly, to any employment will be included in their assessable income.

There must be a connection between the payment and the employment. The receipt must be a product of the employment.

Application to your circumstances

In your case, you received a prize that is awarded annually to honour distinguished achievement. The prize money you received was not income related to your former employment or as a recompense for services rendered to the prize donor, rather the award is recognition for your outstanding contribution to humanity.

We do not consider that the prize is a common incident of your writing. You did not nominate yourself for the prize and consequently you could not expect to win the prize, in fact, you did not know you had been nominated. It also follows that you would not expect to rely on the money to be received from the prize. This can be contrasted with, for example, sportspeople where there is an expectation that they will win prize money over their careers and their activities are usually structured to take advantage of the prize money on offer.

When we consider all of the above factors, on balance, the prize is more related to recognition of your personal qualities and outstanding contribution to humanity than as a reward for your previous employment. Therefore, the nature of the award is that of a personal windfall or gain and it is not considered to be ordinary income.

In your case the prize is not regarded as a product of your employment, nor is it a benefit provided for services rendered. The value of the prize is therefore not assessable under section 15-2 of the ITAA 1997. 

As the prize received by you does not constitute either ordinary or statutory income, the prize is not assessable income.