Edited version of private advice

Authorisation Number: 1051635036659

Date of advice: 17 February 2020

Ruling

Subject: Income tax - assessable income

Question

Are the payments received via the Employer Support Payment Scheme assessable income of the employer?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

20XX

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

An employee of Entity A has requested to take X weeks of unpaid leave to complete Y Entity Service.

The employee is an active Y Entity Member and has been granted unpaid leave previously to conduct shorter periods of service that are not claimable under the Employer Support Payment Scheme (ESPS).

During these shorter periods Entity A covered all costs associated with the employee's absence.

Entity A has received advice from the Y Entity Support Centre that they are an eligible employer and meet all the criteria to claim the Employer Support Scheme to cover costs associated with their employee's absence.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-1

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-10

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

All references made in these reasons for decision are to the Income Tax Assessment Act 1997 (ITAA 1997)unless otherwise stated.

Summary

The payments received via the ESPS are assessable income of the employer in accordance with section 6-1.

Detailed reasoning

Section 6-1 provides that the assessable income of an entity for an income year consists of 'ordinary income' (section 6-5) and 'statutory income' (section 6-10) derived by the entity for the year.

Ordinary income includes income according to ordinary concepts. Income according to ordinary concepts is not defined in the taxation legislation. The characteristics of ordinary income have been developed by case law and generally fall into three categories:

·        income from providing personal services;

·        income from property; or

·        income from carrying on a business.

Case law has established a number of principles to assist in determining the nature of a receipt, including the following:

• the nature of the payment is determined by examining the character of the payment in the hands of the recipient
• regard must be given to all the facts
• the test is objective
• a payment that is provided for a purpose which is not part of the recipient's business will not be income in nature
• a payment paid in consideration for the performance of services is generally income
• periodicity, recurrence or regularity may show a payment to be income
• a payment from an isolated transaction entered into with an intention to profit may still be income.

The Y Entity fact sheet provides the following information about the ESPS:

The Employer Support Payment Scheme (ESPS) provides financial assistance to eligible employers to help offset the costs of releasing employees for most categories of ....... service.

ESPS payments are paid at a set weekly rate regardless of the employee's salary and there are no restrictions on the way employers can use the money. The weekly rate is equivalent to the average weekly full-time adult ordinary time earnings...

Taxation Ruling TR 2006/3 Income tax: government payments to industry to assist entities (including individuals) to continue, commence or cease business, provides guidance on the characterisation of government payments to industry.

A 'government payment to industry' means a payment by the government, or an entity chosen by the government to administer government funds: paragraph 154 TR 2006/3.

A government payment to continue business is included as assessable income as ordinary income (section 6-5) or statutory income (section 6-10). In particular paragraph 12 of TR 2006/3 states that a government payment:

... to assist with business operating costs or liabilities is ordinary income in the hands of the recipient and is assessable under section 6-5 in the income year in which it is derived.

The payments that will be made to Entity A from the ESPS are designed to offset any costs they may incur due to their employee being unavailable during the period of Y Entity Service. These costs are considered to be part of operating Entity A's business, therefore the payments from the ESPS will be ordinary income assessable under section 6-5.