Edited version of private advice

Authorisation Number: 1051596532798

Date of advice: 1 November 2019

Ruling

Subject: Assessable income

Question 1

Is the $XX,XXX you received for your interview assessable?

Answer

Yes

Question 2

Are you entitled to a deduction for the Expenses you have incurred?

Answer

No

This ruling applies for the following period:

Year ended 30 June 2018

The scheme commences on:

1 July 2017

Relevant facts and circumstances

You are employed in a profession.

You enjoy participating in an activity (Activity) and you have never produced income from your Activity.

You consider the Activity is a personal hobby and not a business or for profit.

You planned a trip to participate in your Activity (Trip).

You were involved in an incident (Incident).

A story was reported in the media that you considered incorrect and you felt you had to respond and provide your side of the story.

You signed a contract (Contract), were interviewed, and paid $XX,XXX .

You incurred the expenses during the Trip (Expenses).

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Your assessable income includes income according to ordinary concepts and some amounts that are not ordinary income (statutory income).

If you are an Australian resident (for tax purposes) your assessable income includes ordinary income that is derived directly from all sources, whether in or out of Australia, during the income year. (Section 6-5 of the Income tax Assessment Act 1997 (ITAA 1997))

There are no categories or sources of income within the legislation, just as there were none in the Section 25 of the Income Tax Assessment Act 1936 (ITAA 1936). However, the courts accept that ordinary income generally arises in 4 ways:

(1)   as a reward for rendering personal services (eg salary and wages and professional fees); or,

(2)   as profits from carrying on a business, including profits from unusual or isolated business transactions; or,

(3)   as a return on an investment (eg rent, interest and dividends); or,

(4)   from payments that are regular and relied upon.

Items that are not generally recognised as ordinary income are, gains of a capital nature (although they may be assessable as statutory income); and private receipts like the proceeds of a hobby, a gift for personal reasons or a windfall gain.

Generally, there are four principles to consider when assessing if income is assessable

The first is that the income must be determined from the point of view of the recipient, and not from the payer or anyone else. The second is who the income is from, the source of the income is not generally relevant, neither is how the income is used is not relevant to determining its status. What is important is the nature of the receipts received.

Personal services income is income that is mainly a reward for an individual's personal efforts or skills (or would be mainly such a reward if it was the income of the individual who did the work).

Hobbies

If a taxpayer's activities constitute a hobby or pastime rather than an income-producing activity any money or other benefits received from those activities are generally not regarded as ordinary income (and expenses are not deductible). This is so even if such benefits are received regularly or seemingly arise from the provision of services. In effect, the proceeds of a hobby are treated as "private" receipts, just as the expenses are treated as private expenditure.

Examples of hobbies include:

·        full-time employees who grew orchids in backyard hot houses (Crees v FCT (2001) 46 ATR 1091) or planted a few palm trees on a 50-acre property (Reiger v FCT (2002) AATA 88; (2002) 49 ATR 1022);

·        football umpires who officiated in local Australian Rules football competitions;

·        an accountant who played football on weekends and whose expenses exceeded his football "earnings" of $100 per week;

·        an accountant whose company bought aircraft so he could participate at air shows: Hart v FCT (2003) 53 ATR 371;

·        a motorcycle sidecar racer, whose activities were merely a "vigorous pursuit of a recreational activity or hobby": Gilbert and FCT (2010) AATA 882; (2010) 80 ATR 951;

Windfall gains

The most common examples of windfall gains are winnings in a lottery or a game with prizes.

Windfall gains are generally not ordinary income (and are not subject to tax as statutory income). They lack the regularity or periodicity of income and are not usually an inherent part of any occupation or business activity.

However, if a prize is received in connection with a person's income-producing activities they may be assessable.

Sportspeople

Taxation ruling TR 1999/17 Income tax: sportspeople - receipts and other benefits obtained from involvement in sport discusses benefits received by individuals from involvement in sport. It discusses the taxation implications for payments received and in kind benefits. The ruling does not distinguish between an 'amateur' or 'professional' sportsperson.

Paragraph 9 of TR 1999/17 states that payments or other benefits received for, in respect of, or in connection with services provided are assessable income. In contrast payments received from the pursuit of a pastime or hobby are not assessable income.

Paragraph 21 says that payments received from public appearances, product promotions and endorsements, if received in connection with an employment contract, are assessable income.

Where provision of services is provided outside of employment paragraphs 25 and 26 state that 'where the services consists of the doing of an act for the benefit of another, which is more than the mere making of a contract and which goes beyond the performance of an obligation undertaken in the course of an ordinary commercial contract, the income is assessable income. Accordingly, a sportsperson will only be providing a service where they are undertaking an activity for the benefit of another party; usually this will be the payer.' Income received from the provision of services, regardless if there is an employer /employee relationship, or if the sportsperson is carrying on a business; are assessable.

TR 1999/17 goes on to explain that the provision of services includes the performing of specific promotional services of direct benefit for the payers. Such payments are typically 'tied to' and 'based on' activities undertaken, or hours spent performing duties, that produce objective and tangible (often monetary) benefits for the payer.

Where a sporting activities constitutes a hobby rather than an income-producing activity the income received is not-assessable, nor are the expenses allowable.

Receipts which are incidental to a hobby, for example where activities are seen as social or non-commercial are not seen as assessable income (paragraph 33). These generally do not or they tended to, nor do they usually cover expenses

A sportsperson's income could also involve the commercial exploitation of his or her 'public fame' or 'image'. Typically, commercial exploitation will involve an individual utilising his or her skills in a systematic regular and /or organised manner with a view to obtaining assessable income.

Receipts that are incidents of a pastime or hobby are not assessable even if it arises from the provision of a service.

Example 5: 'Occasional' voluntary payment that is an incident of a hobby

87. Ron is a car enthusiast. As a hobby he races and demonstrates his car; the expenses of competing are far greater than any prize money or other payments he could receive. Ron has a full-time job as an accountant; it is the money he receives as an accountant that he uses to support himself and his hobby.

88. Some of the events Ron competes in offer prize money. Winning prizes is not the reason he competes; he competes to show off his car and for the enjoyment of racing. A local car detailing firm offers to sponsor Ron's car, on a one off basis, for a particular high profile race.

89. As long as Ron's activities constitute a hobby, receipts in the form of prize money are not assessable income. The money received from the sponsor is not in relation to employment, services or a business: it is an incident of his hobby. Accordingly, it is also not assessable income in Ron's hands.

TR1999/17 says that amounts received for, in respect of, or in connection with services rendered by a sportsperson are assessable income even if no employer/employee relationship exists with the payer, or there is no carrying on of a business.

It further explains that even though a person is engaged in a hobby a receipt can still constitute income according to ordinary concepts; for example, where the receipts for the provisions of services are not received in respect to the actual hobby itself.

Where an activity is an incident of a hobby or is separate from the hobby is a matter of fact that will depend upon the circumstances of each case.

TR1999/17 uses Example 6 to illustrate a non-related fee for service

Example 6: Pastime income: non-related fee for service

90. As a social pastime or hobby Ian competes in triathlons. As a result of having won a recent event, he has a high public profile and a media network asks him to appear on TV and provide commentary at a series of Ironman events.

91. Ian receives $1,000 for each of his appearances on TV. Appearing in the media, as a commentator, is not a normal incident of Ian's hobby. The money is received in respect of him making himself available for TV and is not a result of his hobby. Accordingly, such receipts are assessable income in Ian's hands.

In your situation

You are employed in a separate field, and in your spare time, you complete an Activity. You were involved in an Incident. The Incident was featured in the media. You were interviewed and you received income for the interview.

To assess if the funds are assessable we look at the activities required to receive the funds. Who you secured the funds from or how you spent the funds is not relevant in determining the status of the funds received. What is important is the nature of the receipts received.

You have not been able to provide a copy of the Contract, but have stated that the Contract was for the provision of an interview. The essence of the Contract that you undertaking is for the benefit of interviewer.

You were Contracted due to the 'public fame' or 'image' rather than the Trip or Activity. While you were received fame due to the Incident, you were in fact not paid for the Incident; you were paid for an interview.

The income received is not a windfall gain, you have not received winnings in a lottery or as part of a game.

TR 1999/17 says that the provision of specific promotional services where there are direct benefits for the payers, are assessable.

You believe that example 7 is more appropriate for your case

Example 7: Pastime receipts

92. Tony is an accountant by profession. Tony plays football on the weekends. The club he plays for gives him $100 for every game he plays. Tony does not play football to earn income for his regular expenditures. Nor are his receipts paid to provide financial support for Tony or relied on by Tony for that purpose. His motivation in playing football is personal; he does not do it as, nor does he intend it to become, an income producing activity. In a year Tony receives $3000 for playing football. Tony's total expenses exceed $3000.

93. Tony believes the money he receives is not assessable income.

94. Tony lodges an 'Application for a Private Ruling' at his local branch of the Australian Taxation Office (ATO) requesting a determination of whether his receipts from football are assessable income.

95. The ATO advises Tony that based on the facts supplied by him, his receipts are not assessable income. Tony keeps details of his receipts, expenditures and other relevant information to, if necessary, prove the facts he has set out in his Private Ruling request.

However Example 7 is for income received from Tony's pastime (playing football) not from another activity. You did not receive income specifically in regard to your Activity or in regard to the Incident and does not apply in your case.

Expenses

Section 8-1 of the ITAA 1997 says that you can generally deduct from your assessable income any loss or outgoing to the extent that it is incurred in the gaining or producing of your assessable income or it is incurred in carrying on a business for the purpose of gaining or producing your assessable income.

You cannot deduct a loss or outgoing to the extent that it is capital, private or domestic or is incurred in gaining or producing exempt income. In particular, paragraph 8-1(2)(b) of the ITAA 1997 specifically denies a deduction for expenditure that is of a private or domestic nature. Expenditure that is private in nature generally relates to a taxpayer in their personal or private capacity.

You have said that you consider your Activity was a personal hobby and not a business or for profit, therefore deductions are not available.

For the expenses from the Trip to be deductible there would need to be a nexus between the income generated and the deduction.

Your expenses have no direct connection to the gaining or producing of assessable income.

You have argued that you would not have received the amounts if you did not have the Incident arise or you had not participated in the Trip, however, as stated prior you have not been rewarded for the Incident, Activity or Trip, the Contract and payment is for an interview. The expenses are private and domestic and not deductible.