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Edited version of private advice
Authorisation Number: 1051624593936
Date of advice: 7 January 2020
Ruling
Subject: Lump sum payment
Question 1
Is the lump sum payment assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
The lump sum payment is assessable as ordinary income as it is an inducement for the individual to enter into an agreement to provide services from the premises of the service provider and the payment is fundamentally connected to the individual's provision of those services.
Question 2
Does the lump sum payment received from the service provider constitute the personal services income of the individual?
Answer
No.
The lump sum payment is not personal services income as it is not mainly a reward for the personal efforts or skills of the individual. Instead, the payment is mainly an inducement for the individual to enter into an agreement to provide services from the premises of the service provider.
This ruling applies for the following period:
Year ending 30 June 2020
The scheme commences on:
1 July 2019
Relevant facts and circumstances
A service provider, the Trust and the individual entered into an agreement.
The Trust conducts a business through the individual.
The agreement is for the individual to provide services on behalf of the Trust from the premises of the service provider for a number of years.
The service provider is to provide administrative services, clerical staff, facilities, plant and equipment which are necessary for the Trust to conduct its business from the premises.
The service provider is to collect income on behalf of the Trust and charge a service fee for the use of the premises and the services provided.
The agreement contains a restraint clause that specifies that during the period of the agreement the individual must not render services at any place within a certain number of kilometres from the premises of the service provider.
The agreement also provided for a lump sum payment to be paid to the Trust by the service provider on commencement of the agreement. The purpose of the payment is described as being in consideration for:
a) the individual entering into the agreement for the specified period
b) the individual providing the services as specified in the agreement
c) the individual abiding by the restraint clause, and
d) the service provider having the exclusive right to provide the individual with the services at the premises and in so doing, derive the service fee.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 84-5