Edited version of private advice

Authorisation Number: 1051526447626

Date of advice: 4 July 2019

Ruling

Subject: Assessable income

Question

Are the distributions received from a horse racing syndicate assessable income?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a resident of Australia for taxation purposes.

You and your spouse have a X% share in a horse racing syndicate, X.X% each.

You and your spouse have participated in syndicates as a hobby over the past years.

You and your spouse run a business to fund your life style that is not related to the syndicate.

The horse at the centre of the syndicate will be used as a breeding stallion and will generate stud fees in future years.

You and your spouse expect to receive distributions of approximately $XXX,XXX.XX over the next few years.

You have no day to day management of the horse and have limited costs associated with the activity.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-5(2)

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.

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

Based on case law, it can be said that ordinary income generally includes receipts that are earned, expected, relied upon, and have an element of periodicity, recurrence or regularity.

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.

In GP International Pipecoaters Pty Ltd v. Federal Commissioner of Taxation, the Full High Court stated:

To determine whether a receipt is of an income or of a capital nature, various factors may be relevant. Sometimes the character of receipts will be revealed most clearly by their periodicity, regularity or recurrence; sometimes, by the character of a right or thing disposed of in exchange for the receipt; sometimes, by the scope of the transaction, venture or business in or by reason of which money is received and by the recipient's purpose in engaging in the transaction, venture or business.

Amounts that are periodical, regular or recurrent, relied upon by the recipient for their regular expenditure and paid to them for that purpose are likely to be ordinary income, as are amounts that are the product in a real sense of any employment of, or services rendered by, the recipient.

Ultimately, whether or not a particular receipt is ordinary income depends on its character in the hands of the recipient. The whole of the circumstances must be considered and the motive of the payer may be relevant to this consideration.

In your case the distributions you receive from the horse racing syndicate is considered to be ordinary income as the payments are periodical, relied upon and expected.

The distributions are no different to distributions from any other income producing activity.

Therefore the distributions you and your spouse receive are assessable income and must be declared in your Australian tax return.

In your application you refer to Taxation Ruling 2008/2 (TR 2008/2).various income tax issues relating to the horse industry.

Paragraph 4 of this ruling sets out situations that TR 2008/2 does not specifically deal with and it states:

·         leasing arrangements relating to the breeding of horses or syndicate arrangements generally;

This means that TR 2008/2 does not deal with your arrangement being a horse racing syndicate and therefore does not apply to your circumstances.