Edited version of private advice

Authorisation Number: 1052066536856

Date of advice: 2 December 2022

Ruling

Subject: Repayment of prior year income

Question

Do the repayments of the bonuses previously received by the Taxpayer represent non-assessable non-exempt income in the years they were received pursuant to section 59-30 of the Income Tax Assessment Act 1997?

Answer

Yes.

Question

Is the Commissioner within time to amend an assessment pursuant subsection 170(1) of the Income Tax Assessment Act 1936 should an amendment request be made?

Answer

Yes.

Question

Is the bonus paid to the Taxpayer from his new employer during the 20XX income year regarded as assessable income pursuant to section 6-5 of the Income Tax Assessment Act 1997?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Taxpayer is an employee of Company A.

The Taxpayer received bonuses in several years.

The Taxpayer would be required to repay a percentage of these bonuses if they resigned and certain other criteria had not been met.

The Taxpayer resigned in 20XX and was required to repay certain amounts of the bonuses.

The Taxpayer began working for Company B and received a lumpsum bonus payment.

The Taxpayer is a beneficiary of a trust.

The trust is used for passive investment and is not a small or medium business entity

The trustee of the trust is not a full self-assessment taxpayer.

Relevant legislative provisions

Section 6-5 of the Income Tax Assessment Act 1997

Section 59-30 of the Income Tax Assessment Act 1997

Section 170 of the Income Tax Assessment Act 1936

Reasons for decision

Question 1

Summary

The amounts of prior year income you are required to repay will be classified as non-assessable non-exempt income in the years they were received.

Detailed reasoning

Employment income

Under section 6-5 of the ITAA 1997 'assessable income' includes income according to ordinary concepts. You are taken to receive the amount of ordinary income as soon as it is applied or dealt with in any way on your behalf or as you direct pursuant to subsection 6-5(4) of the ITAA 1997.

Paragraph 42 of Taxation Ruling TR 98/1 Income tax: determination of income; receipts vs earnings (TR 98/1) states that income from employment would normally by assessable on a receipts basis even though they relate to a past or future period.

As such, you would be required to report employment income you receive in an income year in that year's tax return.

Repayment of prior year employment income

Section 59-30 of the Income Tax Assessment Act 1997 (ITAA 1997) operates to exclude an amount from your assessable income for an income year if you have repaid it in a later income year and you cannot deduct the repayment in any income year.

Subsections 59-30(1) and 59-30(2) of the ITAA 1997 state:

50-30(1) An amount you receive is not assessable income and is not *exempt income for an income year if:

(a) you must repay it; and

(b) you repay it in a later income year; and

(c) you cannot deduct the repayment for any income year.

50-30(2) It does not matter if:

(a) you received the amount as part of a larger amount; or

(b) the obligation to repay existed when you received the amount or it came into existence later.

59-30(3) This section does not apply to an amount you must repay because you received a lump sum as compensation or damages for a wrong or injury you suffered in your occupation.

The amounts of prior year income you are required to repay for the 20XX, 20XX, 20XX, and 20XX income years are:

•         amounts you must repay

•         are being repaid in a later year,

•         are amounts that you cannot claim a deduction for, and

•      are not amounts you must repay because you received a lump sum as compensation or damages for a wrong or injury you suffered in your occupation.

The amounts of prior year income you are required to repay for the 20XX, 20XX, 20XX, and 20XX income years will be classified as non-assessable non-exempt income in the years they were received.

Question 2

Summary

The Commissioner can amend the assessments for the 20XX, 20XX, and 20XX income years if an amendment request is submitted by the taxpayer prior to the date the period of review ends for each assessment.

Detailed reasoning

Pursuant to subsection 170(1) of the ITAA 1936, the Commissioner may amend an individual's tax return within 2 years of the date of the notice of assessment, or 4 years if they are a beneficiary of a trust that is not a small or medium business entity.

Therefore, item 4 of subsection 170(1) of the ITAA 1936 applies to give a 4-year amendment period given you have been a beneficiary of a discretionary trust since 21 August 20XX that is not a small or medium business entity in the 20XX, 20XX, and 20XX financial years.

The period of review for which the Commissioner may amend the Taxpayer's income tax returns for the relevant years has not expired.

Therefore, the Commissioner is within time to amend the assessments listed above provided an amendment request is submitted prior to the date the period of review ends for each assessment.

Question 3

Detailed reasoning

Pursuant to section 6-5 of the ITAA 1997, a taxpayer's assessable income is income according to ordinary concepts.

Paragraph 42 of TR 98/1 states that salary, wages or other employment remuneration are assessable on receipt even though they relate to a past or future income period.

The lump sum payment received from the new employer will form part of your assessable income in the 20XX income year when it is received as it is part of accepting the offer of employment.