Edited version of your written advice

Authorisation Number: 1013084257359

Date of advice: 7 September 2016

Ruling

Subject: PAYG Withholding

Question 1

Is the Employer obliged to withhold tax from a payment made from the entity's Employee Emergency Support Fund pursuant to section 12-35 of the Tax Administration Act 1953?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 2016

Year ending 30 June 2017

The scheme commences on:

1 July 2015

Relevant facts and circumstances

The entity is providing an amount of money from their employee emergency support fund to assist staff in extremely necessitous circumstances (ie fire, flood, accident, illness, etc).

The staff receiving the money are not eligible to be supported by the entity using other established methods.

Funds will only be provided to an identified individual under the following conditions:

• The individual must be a current employee of the entity

• The individual must have suffered or be suffering from a circumstance that significantly and negatively impacts them and their ability to support themselves and their family in the immediate to short term.

• The individual will not have other identifiable means of financial support (ie available sick or other paid leave).

• The Director Human Resources must review the circumstances and recommend paying the individual.

• The entity's manager must exercise their discretion to accept the Director Human Resources' recommendation.

Under no circumstances would this payment be used as a reward for services provided by the employee.

Relevant legislative provisions

Taxation Administration Act 1953 Section 12-35 of Schedule 1

Income Tax Assessment Act 1997 section 6-1

Income Tax Assessment Act 1997 section 6-10

Income Tax Assessment Act 1997 section 6-15

Income Tax Assessment Act 1997 section 6-20

Income Tax Assessment Act 1997 section 10-5

Income Tax Assessment Act 1997 section 15-10

Reasons for decision

Summary

The payment that you make from the employee emergency support fund is not ordinary income or statutory income, so it is not assessable income. As it is not considered to be income, there is no requirement to withhold from those payments.

Detailed reasoning

PAYG Withholding

Division 12 of schedule 1 of the Taxation Administration Act 1953 (TAA) sets out the types of payments from which an amount must be withheld.

However, this is subject to section 12-1 of schedule 1 of the TAA which sets out the general exceptions where withholding is not required.

Included in the exceptions is a payment that is exempt income of the entity receiving the payment. In relation to these payments subsection 12-1(1) of schedule 1 of the TAA which states:

An entity need not withhold an amount under section 12-35, 12-40, 12-45, 12-47, 12-50, 12-55, 12-60, 12-80, 12-85, 12-90, 12-120 or 12-190 from a payment if the whole of the payment is *exempt income of the entity receiving the payment.

Exempt income is defined in section 6-20 of the Income Tax Assessment Act 1997 (ITAA 1997). Under subsection 6-20(1) an amount of ordinary income or statutory income is exempt income if it is exempt from income tax by a provision of the Income Tax Assessment Act or another Commonwealth law.

Assessable income

Subsection 6-1(1) of the ITAA 1997 states that assessable income consists of:

• ordinary income, and

• statutory income.

If an amount is not ordinary income and is not statutory income it is not assessable income, so you do not have to pay income tax on it (subsection 6-15(1) of the ITAA 1997).

Ordinary income

Ordinary income is income according to ordinary concepts (section 6-5 of the ITAA 1997).

Ordinary income has generally been held to include three categories: income from rendering personal services, income from property and income from carrying on a business.

The courts have identified a number of factors which indicate whether an amount has the character of income according to ordinary concepts.

A frequent characteristic of income receipts is an element of periodicity, recurrence or regularity (Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540; (1952) 10 ATD 82; (1952) 5 AITR 443; (1952) 10 ATD 82). Other characteristics of income that combine with periodicity are that the receipts:

• are earned

• are expected, and

• are relied upon.

Statutory income

Statutory income is not ordinary income, but is included in assessable income by specific provisions of the income tax law (section 6-10 of the ITAA 1997).

These specific provisions are listed in section 10-5 of the ITAA 1997. These provisions do not include payments made to assist people in extremely necessitous circumstances.

Application to your circumstances

In this case, the grant of financial assistance from the employee emergency support fund is a one off or non-periodic payment and so it does not have an element of regularity. The payment is made as a result of hardship suffered as the result of extremely necessitous circumstances

The employee emergency support fund is designed to provide emergency short term relief for employees in times of extremely necessitous circumstances. These funds are distributed to staff members who are not eligible to be supported by the university in another capacity.

Generally, a gift is regarded as a personal windfall gain and not as ordinary income unless the taxpayer has received the gift because of, in respect of, or in relation to any income producing activity of the taxpayer (Scott v. Federal Commissioner of Taxation (1966) 117 CLR 514; (1966) 14 ATD 286; (1966) 10 AITR 367 (Scott's Case)).

In Scott's Case, Windeyer J stated (at CLR 526; ATD 293):

Whether or not a particular receipt is income depends upon its quality in the hands of the recipient. It does not depend upon whether it was a payment or provision that the payer or provider was lawfully obliged to make. The ordinary illustrations of this are gratuities regularly received as an incident of a particular employment. On the other hand, gifts of an exceptional kind, not such as are a common incident of a man's calling or occupation, do not ordinarily form part of his income.

Taxation Determination TD 2006/22 discusses whether disaster relief money received from charities is assessable income of taxpayers carrying on a business. The Determination deals with situations where taxpayers, who experience financial hardship as a result of a natural disaster such as a drought or bushfire, receive financial assistance from a charity (which conducts a relief appeal and receives donations from the general public).

TD 2006/22 states that one-off disaster relief money received by a taxpayer carrying on a business from a charity, as part of community assistance, in the situations covered in the Determination, is not assessable income under either section 6-5 or 15-10 of the ITAA 1997. Such payments represent a gift to help people in difficult financial circumstances.

Consequently, the payments made from the employee emergency support fund is considered to be a gift. It is not ordinary income under section 6-5 of the ITAA 1997 or statutory income under section 15-10 of the ITAA 1997, in accordance with TD 2006/22. The payment is therefore not assessable income (subsection 6-15(1) of the ITAA 1997)..

As such, the entity is not obliged to withhold tax from a payments made from the employee emergency support fund pursuant to section 12-35 of the TAA 1953.