Private ruling: Assessable income
Date of advice: 23 August 2023
Published: 9 October 2023
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Does the receipt of your fellowship payment from Company Z, form part of your assessable income under either section 6-5, section 6-10 or section 15-2 of the Income Tax Assessment Act 1997? | A1: No.

Relevant facts and circumstances: Company Z is an Australian company. A Director served on the board of directors for several years. The Director passed away in a previous financial year and made a bequest to the company, with specific obligations to its usage. Company Z will receive an amount for the development and presentation of new works and general operations. A number of individuals will each receive payments for their professional and personal development. The Director discussed the purpose of the payments and who they felt should be the recipients. You were one of the individuals who received a payment towards your professional and personal development. Further details of the fellowship: • The Fellowship is awarded to any suitable individual. It is an endowment from a deceased estate and has no specific obligations of activity or services. • The Fellowship isn't specifically tied to a single creation that the nominee has produced and can be for a body of work or for showing outstanding promise. • The Fellowship is awarded to people in the relevant field who have demonstrated outstanding talent. • The Fellowships are unrestricted amounts that don't require the taxpayer to fulfill any conditions attached to receiving the money and can be spent as they choose. • Nominations for both Fellowships are handled by Third Parties unrelated to the nominee, and the process of receiving the award and Fellowship follow a path where, after the nomination process, an independent panel of experts assess each nominee and make a decision based on the respective assessment criteria.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 6-5(1) | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 subsection 15-2(1)

Reasons for decision: Summary: A payment or other benefit received by a taxpayer is included in assessable income if it is: • income in the ordinary sense of the word (ordinary income), or • an amount or benefit that through the operation of the provisions of the tax law is included in assessable income (statutory income). | Detailed Reasoning - Ordinary income: Subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that an amount is included in assessable income if it is income according to ordinary concepts (ordinary income). The legislation does not provide specific guidance on the meaning of income according to ordinary concepts. However, a substantial body of case law exists which identifies likely characteristics. The courts have also established that consideration of the whole of the circumstances is necessary. The following factors are relevant in determining whether or not the fellowship is income according to ordinary concepts: • how, in what capacity, and for what reason the recipient received the fellowship • whether the fellowship is of a kind which is a common incident of the recipient's calling or occupation • whether the fellowship is made voluntarily • whether the fellowship is solicited • whether the fellowship can be traced to gratitude engendered by some service rendered by the recipient • the motive of LGI (though this factor is rarely decisive in itself) • whether the recipient relies on the fellowship for regular maintenance of themselves and any dependants. | Detailed Reasoning - Application to your situation: The Fellowship is awarded to any suitable candidate. It is an endowment from a deceased estate and has no specific obligations of activity or services. The Fellowship isn't specifically tied to a single work that the nominee has produced and can be for a body of work or for showing outstanding promise. The fellowship is not solicited by the recipient, and it cannot be traced to any services rendered by the recipient. The Fellowship is awarded to people in the relevant field who have demonstrated outstanding talent. The Fellowships are unrestricted amounts that don't require the taxpayer to fulfill any conditions attached to receiving the money and can be spent as they choose. Nominations for both Fellowships are handled by Third Parties unrelated to the nominee, and the process of receiving the award and Fellowship follow a path where, after the nomination process, an independent panel of experts assess each nominee and make a decision based on the respective assessment criteria. In view of these circumstances, it is accepted that the fellowship is not ordinary income and does not form part of your assessable income. | Detailed Reasoning - Statutory income: Section 6-10 of ITAA 1997 includes in assessable income amounts that are not ordinary income. These amounts are statutory income. A list of the statutory income provisions can be found in section 10-5 of ITAA 1997 . That list includes a reference to 15-2 of ITAA 1997 . Subsection 15-2(1) of ITAA 1997 provides that: • Your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly to, any employment or services rendered by you. The main issue to consider with respect to subsection 15-2(1) of ITAA 1997 is whether the fellowship is provided to you in respect of any employment or services rendered. | Detailed Reasoning - Application to your situation: The fellowship is not a product of your employment. It is a reward for your talent in the relevant field. However, subsection 15-2(1) of ITAA 1997 also includes in assessable income those allowances etc, which are paid in respect of services rendered. The fellowship does not require any specific outcomes. There is no agreement or expectation that recipients provide or supply services. As such the fellowships are not assessable under section 15-2 of ITAA 1997 because the payment is not provided to you in respect of any employment or for services rendered by you