Edited version of private advice

Authorisation Number: 1052341682373

Date of advice: 17 December 2024

Ruling

Subject: Income - professional services

Question

Is the income you receive for professional services in the 2024-25 financial year assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following period:

Year ending XX June 20XX

The scheme commenced on:

XX July 20XX

Relevant facts and circumstances

You provide services to organisations.

You hold appropriate tertiary qualifications.

You have several decades experience in your field.

You have also been working at a relevant authority for much of that time.

You are a member of several professional associations.

You were originally invited to undertake this work by colleagues from a professional association who know your work and who are currently employed at the organisations where you are providing your services.

When these two organisations require your services, they contact you by phone or email and discuss the tasks which you are to undertake.

You negotiate the rate of payment for your services when you are contacted.

Payment for your services is based on your estimate of the hours you will spend providing these services and the amount you would be paid per hour in your full time employment. You also include an estimate of the time it takes you to write a summary report.

Payment for your services is made by direct deposit into your bank account.

You provide services for there are set guidelines for you to follow when providing your services for two of the organisations.

You provide your services for these two organisations on a regular basis for one block of working time each year.

You complete and submit an ATO Statement by a Supplier and provide your TFN when providing your services at these two organisations.

You indicated on these forms that the supply of your services is made in the course or furtherance of an activity done as a private recreational pursuit or hobby.

These two organisations automatically arrange payment for your services when you submit these forms.

For three of the organisations you have provided your services for in the 20XX-XX financial year you have control over how you provide your services.

You provide your services for these three organisations on an irregular basis, with years sometimes passing between engagements for your services.

Arrangements for you to provide your services to these three organisations and for payment are made over the phone.

In total you estimate you have spent over X weeks on this activity in the relevant year and were paid over $XXXX for your services. You have not kept written records of the time you spent on this activity.

You use the money you are paid to help support your extended family.

You do not keep a record of your expenses but estimate that the cost to you of providing these services would be between $XXXX and $XXXX a year.

You have not had tax withheld on any payments you receive for providing your services.

No superannuation has been paid in respect of the services you have provided to these organisations.

You undertake this activity to pursue your personal interests and for professional development.

You requested and received a private ruling from the ATO in 20XX stating that your activity was a hobby at the time, however your circumstances have changed, and that ruling is no longer relevant.

As your service provision activity has become more regular, you are providing your services to more organisations, and the amount of money you are being paid for this activity is increasing so you are reviewing the status for taxation purposes of this activity.

You do not have a business plan for this activity, and you do not keep any records related to this activity.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Reasons for decision

Section 6-5 of the Income Tax Assessment Act (ITAA 1997) states that assessable income includes income according to ordinary concepts, or ordinary income. Examples of ordinary income include salary and wages, payments for personal services, and returns on investments in the form of dividends or interest.

While ordinary income is not defined in the ITAA 1997 the term has been extensively discussed through case law. Factors to be considered in determining whether a payment is ordinary income have been identified in this body of case law. These factors include:

•                Whether the payment is received periodically and regularly

•                Whether the payment is expected or relied upon

•                Whether the payment is earnt

•                Whether the payment is for the replacement of income.

Determination of whether a particular payment is treated as ordinary income will depend on the facts of each case.

You receive payments for providing your services from five organisations. For two of these organisations you provide your services on a regular basis for one block of working time each year. You provide your services for the other three organisations on a less regular basis. You negotiate the amount of these payments based on the hourly rate you are paid as an employee and your estimate of the number of hours you will be engaged in this work.

The payments you are receiving have a direct relationship to the services you are performing for the organisations that are paying you. You perform these services each year for several of these organisations and to this extent they are of a periodical and regular nature. As all these payments are earnt and several of them occur on a regular basis they can be expected and relied upon.

This being the case the income you receive for providing your services in the relevant year will be assessable income under section 6-5 of the ITAA 1997.