Edited version of private advice

Authorisation Number: 1051238372538

Date of advice: 28 June 2017

Ruling

Subject: prize money

Question and answer

Is the prize you won assessable income?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2016

The scheme commenced on:

1 July 2015

Relevant facts and circumstances

You won a prize in the 2016 income year.

You are a professional and you work in the area that your prize was awarded.

You earn income in this area.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Reasons for decision

A payment or other benefit received by a taxpayer is assessable income if it is:

• income in the ordinary sense of the word (ordinary income); or
• an amount or benefit that through the operation of the provisions of the tax law is included in assessable income (statutory income).

Ordinary income

Subsection 6-5(1) states that the assessable income of a taxpayer includes income according to ordinary concepts (ordinary income).

The legislation does not provide specific guidance on the meaning of income according to ordinary concepts. However, a substantial body of case law exists which identifies likely characteristics.

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 of gift donor
• the motive of the prize or gift donor (though 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

There have been a number of court or tribunal decisions where prize money has been considered to constitute ordinary income. In Case V6 88 ATC 140; (1987) 19 ATR 3044 a partner in a newsagency business won a prize in a newspaper sales competition. The Administrative Appeals Tribunal held that the taxpayer was in the newspaper business and the prize was attracted as a result of that business activity and therefore the taxpayer received the prize because of, or in relation to the business or income-producing activity.

In Kelly v. FC of T (1985) 80 FLR 155; (1985)16 ATR 478; 85 ATC 4283 an employee footballer won a cash award for being the best and fairest player. The Court held that the prize was clearly incidental to the taxpayer's employment as a footballer and that he was eligible to receive the payment by virtue of that employment. This sort of prize was a normal incident of that employment.

The prize you received was awarded to you because you work in the particular area that the prize was given to you.

You earn income in the area that the prize was awarded to you and the income is assessable.

The payment is therefore ordinary income and is assessable under section 6-5 of the ITAA 1997 as it relates to your income producing activities.