ATO ID 2002/916: Assessable income - payment for seconded employee
Date of decision: 4 September 2002
Year of income: Year ended 30 June 2002
Business line: Private Groups and High Wealth Individuals

Issue
Is a taxpayer assessable under section 6-5 of the Income Tax Assessment Act 1997 ('ITAA 1997') on an amount received as payment for a seconded employee?

Decision
Yes. A taxpayer is assessable under section 6-5 of the ITAA 1997 on an amount received as payment for a seconded employee as it represents income according to ordinary concepts.

Facts
The taxpayer is a non profit organisation. An employee of the taxpayer participated in a review of a project undertaken by an unrelated organisation. As a result, the taxpayer received a payment based on commercial rates which allowed the taxpayer to derive a profit from the transaction after paying the relevant employee and direct on-costs. The objectives of that project was consistent with the taxpayer's objectives. The taxpayer approved the secondment in part because it assisted them in fulfilling their own objectives.

Reasons for decision
Summary: Assessable income consists of ordinary income and statutory income. Statutory income is defined in section 6-10 of the ITAA 1997 as any income which is not ordinary income. Ordinary income is defined in section 6-5 of the ITAA 1997 as income according to ordinary concepts. Amounts received in the ordinary course of a taxpayer's business or operations are income according to ordinary concepts. Even though the operations of the taxpayer are not conducted for commercial profit their operations are similar to those of a business. The project to which the employee was seconded was consistent with the taxpayer's objectives. By providing the services of their employee, the taxpayer was fulfilling these objectives. It follows that the payment was received by the taxpayer as a result of carrying out its normal operations and is therefore income according to ordinary concepts. Alternatively, the payment is considered to be ordinary income as the taxpayer has entered into the arrangement with the intention of making a gain from that arrangement. In Federal Commissioner of Taxation v. Myer Emporium Ltd (1987) 63 CLR 199; 87 ATC 4363; (1987) 18 ATR 693 the High Court stated 'The important proposition to be derived from Californian Copper and Ducker is that a receipt may constitute income, if it arises from an isolated business operation or commercial transaction entered into otherwise than in the ordinary course of the carrying on of the taxpayer's business, so long as the taxpayer entered into the transaction with the intention or purpose of making a relevant profit or gain from the transaction.' This transaction was a business or commercial transaction for the following reasons: The taxpayer intended to make a gain out of the transaction as the amount received was used to further its aims and assist in funding its operations. Therefore, the amount is income according to ordinary concepts and the taxpayer will be assessable under section 6-5 of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 section 6-5 section 6-10
Case references: Federal Commissioner of Taxation v. Myer Emporium Ltd (1987) 163 CLR 199 (1987) 18 ATR 693 87 ATC 4363
Subject references: Business income Income