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Edited version of private advice
Authorisation Number: 1051269514573
Date of advice: 16 August 2017
Ruling
Subject: Income - assessable
Question 1
Is the payment you received by way of a colleague from a student assessable to you as income?
Answer
No.
This ruling applies for the following period(s)
Year ending 30 June 2017.
The scheme commences on
1 July 2016.
Relevant facts and circumstances
You retired in XXXX.
In XXXX, a colleague approached you and asked if you would be interested in editing papers written by research students and staff of a university.
Your colleague wanted someone to ensure that the final paper was well written and unambiguous.
You agreed to edit the papers on the condition that you were not paid for your services.
In the period XXXX to XXXX, you have edited approximately XX research papers and not been paid for these services.
In XXXX your colleague delivered to you an envelope containing a sum of money which had been given to them by a research student for you.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 6-10
Income Tax Assessment Act 1997 Section 15-2
Reasons for decision
Detailed reasoning
Section 6-5 of Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident for taxation purposes, includes income according to ordinary concepts (ordinary income) derived directly or indirectly from all sources.
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.
Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income but are included in assessable income by another provision, are called statutory income and are also included in assessable income.
Subsection 15-2(1) of the ITAA 1997 provides that the assessable income of a taxpayer includes the value to the taxpayer of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to the taxpayer in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by the taxpayer.
A payment of a gratuity is a payment of the type covered by subsection 15-2(1) of the ITAA 1997 as it can be said to be a benefit granted in respect of the services rendered by the taxpayer.
Gifts
Personal gifts are prima facie not income. Whether a gift is assessable income depends on the character of the receipt in the hands of the recipient and the test to be applied is an objective, not subjective, one (Hayes v FC of T (1956) 11 ATD 68).
Taxation Ruling IT 2674 outlines the relevant factors to be taken into account in determining the character of the receipt, namely:
- how, in what capacity, and for what reason the recipient received the gift; and
- whether the gift is of the kind which is a common incident of the recipient's calling or occupation; and
- whether the gift is made voluntarily; and
- whether the gift is solicited; and
- if the gift can be traced to gratitude engendered by some service rendered by the recipient to the donor, whether the recipient had already been remunerated fully for that service; and
- the motive of the donor (but it is seldom, if ever decisive); and
- whether the recipient relies on the gift for regular maintenance of himself or herself and any dependants.
If the facts surrounding the transaction show that the payment or transfer was made without legal obligation but is nevertheless so related to the recipient's employment, or to services rendered, or to a business carried on that it is, in substance and in reality, not a mere gift but the product of an income-earning capacity, it will be regarded as assessable income of the recipient (Taxation Determination TD 2006/22).
Application to your circumstances
While it could be argued that the payment that you received was earned through the service you provided, it was not: expected; relied upon; or regular. It was not solicited, nor was it asked for. This payment was presented to you by a research student, whose motives are unknown. You do not rely on payments of this type for regular maintenance of yourself or your dependents. The amount of the payment was not comparative to that which is normally received for such services. Taking all of the relevant factors into account, in this circumstance, the Commissioner considers that the payment was a gift and is not assessable income.