Edited version of your written advice

Authorisation Number: 1051403690147

Date of advice: 23 July 2018

Ruling

Subject: Prize money

Question

Is the prize money regarded as assessable income?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2019

The scheme commenced on

1 July 2018

Relevant facts

You are a prize winner. You are a professional and an Australian resident.

The prize is sponsored by a foreign entity.

The recipients of the award are selected from nominations from all over the world. A nominator may not submit his or her own name for nomination.

The Prize recognises outstanding individuals or organizations for their theoretical and practical achievements. Citizens of all nations are eligible for the prize. The candidate shall be a person of good conduct.

The winners are awarded a certificate of merit, a commemorative trophy and a supplementary monetary award at an awards ceremony.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5.

Income Tax Assessment Act 1997 Section 6-10.

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.

Generally speaking, a receipt will be income according to ordinary concepts if it is a receipt arising out of a taxpayer's employment, business activities or income producing activities. This will be so even if the receipt is not directly related to any service provided by the recipient to the donor (FC of T v Dixon (1952) 86 CLR 540 (Dixon’s case)).

However, windfall gains which result from winning a prize, a lottery or any other game of chance are not assessable. Also, a receipt that is a mere gift will not constitute income according to ordinary concepts. For example, if an award is attributable to the personal qualities of an individual, it is generally a gift and therefore not assessable income.

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 v. Federal Commissioner of Taxation (1956) 96 CLR 47; (1956) 6 AITR 248; (1956) 11 ATD 68 (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 (Dixon's case ) and FC of T v. Blake (1984) 75 FLR 315; (1984) 15 ATR 1006; 84 ATC 4661).

The Commissioner's view on the assessability of money received by way of awards and prizes is set out in Income Tax Rulings IT 2145, IT 2474 and IT 167.

IT 2145 Income tax: BHP awards for the pursuit of excellence - whether assessable income addresses whether the BHP Awards which are made to Australians who have made outstanding contributions to the pursuit of excellence in their particular fields of endeavour and who may not yet be recognised for their achievements.

Although an award sometimes will be made in respect of achievements directly related to a winner's vocation or business, the nature of the award is that of a personal windfall or gain not having the qualities of income. Such awards therefore, will not generally be assessable income in the hands of recipients.

The winners of the BHP Awards for the Pursuit of Excellence are chosen from six categories which are claimed to cover every occupation and pursuit so that entry is open to all, whether by nomination of others or self-nomination. The judging of the awards is by special panels including experts in the particular category and anyone who has achieved excellence will be eligible in one category or another except for employees of BHP.

IT 2474 Income tax: assessability of payments received under the Military Skills Award Programme discusses the awards made to successful participants in military skills competitions conducted in or between units in the Australian Regular Army and Army Reserve. For a member of the Australian Regular Army, participation in a military skills competition is regarded as part of his duties as an employee and the cash prizes are part of the pay and allowances arising from the performance of those duties. The cash prizes are therefore assessable income under section 6-5 of the ITAA 1997.

IT 167 Treatment for income tax purposes of radio & television competition prizes states in paragraph 5: "A prize or award won in circumstances where it is an incident of the taxpayer's income producing activities (for example, a 'best player' award won by a professional footballer in a newspaper competition) or where it is part of the proceeds of a business conducted by the taxpayer (for example, a prize won by an author in a literary competition) would have the character of income.”

It is clear from the above that prizes will not constitute assessable income if they are received as a result of the personal qualities of the recipient. However, awards that relate to a taxpayers income producing activities will be assessable under section 6-5 of the ITAA 1997. That is, where an employee in an industry wins an award offered by that industry, the nexus between the award and the employment would constitute income under ordinary concepts.

In your case, the prize is open to world-wide citizens from various fields. Similar to the BHP Pursuit of Excellence Awards, the prize is not single industry focussed but covers many occupations and pursuits. The prize was not limited to your occupation. Your prize is not like the Military Skills Awards but more like the BHP award.

Your prize is not a common incident of your occupation, it was made voluntarily by entity A, you did not nominate yourself and the prize was not solicited by yourself.

It is considered that the Commissioner's views in IT 2145 apply to your prize as the prize is awarded irrespective of the person's occupation. Therefore, the award is not assessable income under section 6-5 of the ITAA 1997.

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. No other taxation provision is relevant in your circumstances. Therefore your prize is not assessable as ordinary or statutory income.