Private ruling: Assessability of prize money
Published: July 2012
Ruling period: Year ending 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Question and answer: | Is the prize money you received from the television show assessable income? | No.

Relevant facts and circumstances: You are qualified in a particular skill. You are the co-proprietor of a small business utilising that skill. Your experience is limited to that specific skill. You applied for and were successful in gaining a place as a contestant on a television show (the show). You have never been in the business of the specific occupation that the show was based on. You state that the only requirement in applying for the show was that applicants had to have some relevant experience. The work carried out on the show was carried out by the contestants who were placed into different teams. You were not paid to appear on the show but your expenses were reimbursed. You were a member of a team and won an amount of money as a prize. The challenges won by your team were achieved through a team effort.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 Income Tax Assessment Act 1997 Section 6-10 Income Tax Assessment Act 1997 Section 10-5 Income Tax Assessment Act 1997 Section 15-2

Reasons for decision: Summary: Please note that all references are to the Income Tax Assessment Act 1997 (ITAA 1997). Assessable income - income according to ordinary concepts Subsection 6-5(1) explains that your assessable income includes ordinary income and defines ordinary income as income according to ordinary concepts. The legislation does not provide any specific guidance on what is meant by income according to ordinary concepts however, the courts have identified a number of factors which indicate whether an amount has the character of income according to ordinary concepts. These include: · it is earned; · it is received regularly or periodically; · it is expected; and · it is relied upon. It is not necessary for all of these characteristics to be present for a receipt to be considered ordinary income. Subsection 6-5(2) advises that the assessable income of an Australian resident taxpayer includes ordinary income directly or indirectly from all sources, whether in or out of Australia, during the income year. A prize or gift will be classed as 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). Generally, a gift or prize is regarded as a personal windfall gain and not as ordinary income unless you have received the prize or gift because of, in respect of, or in relation to any of your income-producing activities. In determining whether a prize or gift is ordinary income, the courts have established that consideration of the whole of the circumstances is necessary and that the following factors need to be taken into account: · how, in what capacity, and for what reason you received the prize or gift; · whether the prize or gift is of a kind which is a regular occurrence of your calling or occupation; · whether the prize or gift is made voluntarily; · whether the prize or gift is solicited; · whether the prize or gift can be traced to gratitude prompted by some service rendered by you to the prize of gift donor; · the motive of the prize or gift donor (though this factor is rarely decisive in itself); and · whether you rely on the prize or gift for regular maintenance of yourself and any dependants. Taxation Ruling IT 2145 Income tax: BHP awards for the pursuit of excellence - whether assessable income deals with the question of the 'BHP Awards for the Pursuit of Excellence' (BHP Awards). These BHP Awards are made to Australians who have made outstanding contributions to the pursuit of excellence in their particular fields. IT 2145 provides that although these awards will sometimes be made with regard to achievements directly related to a winner's vocation the nature of the award is that of a personal windfall or gain not having the qualities of income. The taxpayer's prize winning research was undertaken during the course of their employment as a researcher. In addition to any employer use of the research, the research was published in various scientific journals and discussed at conferences. The publication and discussion of the research was in addition and separate to any employment obligations/responsibilities. It was the dissemination of the research through the mediums of journals and conferences that gave rise to the nomination for the prize. Taxation Ruling TR 1999/17 Income tax: sportspeople - receipts and other benefits obtained from involvement in sport provides some guidance on what the relevant factors are in determining whether an amount is ordinary income. These factors include: · whether the payment is the product of any employment, services rendered, or any business; · the quality or character of the payment in the hands of the recipient; · the form of the receipt, that is whether it is received as a lump sum or periodically; and · the motive of the person making the payment. Motive, however, is rarely decisive as in many cases a mixture of motives may exist. TR 1999/17 examines situations where an occasional voluntary payment, such as an award or prize, is received by a sportsperson. The ruling advises that the assessability of such a payment needs to be determined on a case by case basis. As well as the general principles and factors outlined above, other relevant factors also need to be considered. These factors include: · how and why it came about that the payment or gift was made; · whether the payment or gift is of a kind which is a common incident of the recipient's calling or occupation; and · whether the payment or gift is solicited. In Hayes v. FC of T , Fullagar J quoted, with approval, the following passage from the judgement of Kitto J in the Squatting Investment Case : The distinction those decisions have drawn between taxable and non-taxable gifts is the distinction between, on the one hand, gifts made in relation to some activity or occupation of the donee of an income-producing character...and, on the other hand, gifts referable to the attitude of the donor personally to the donee personally.' In FC of T v. Harris Bowen CJ said: A generally decisive consideration is whether the receipt is the product in a real sense of any employment of, or services rendered by the recipient, or of any business, or, indeed, any revenue producing activity carried on by him TR 1999/17 concludes that an occasional voluntary payment received in respect of sporting activities is assessable income if the recipient is an employee, is engaged in the provision of services, or carries on a business in respect of those sporting activities. Such payments are assessable even though they are in respect of past or future employment, the past or future provision of services, or a past business. However, in most cases an occasional voluntary payment made in respect of sporting activities but received in circumstances other than those outlined, is not assessable income. Such payments are usually in the nature of 'windfall gains'. In Kelly v. FC of T an employee of a football club received a $20,000 award from an unrelated party for being voted the best and fairest player for the season. In that case, Franklyn J held that the amount was assessable income of the sportsperson because it was directly related to his employment as a footballer. In FC of T v Stone 2005 ATC 4234, the prize money and grants received by an Olympic javelin thrower were found to be assessable income. The Full High Court considered that the taxpayer, who was also in full-time employment as a police constable, was carrying on a business as a professional athlete. Although she did not seek to maximise her receipts from prize money, preferring to seek out the best rather than the most lucrative competitions, her pursuit of excellence, if successful, necessarily entailed the receipt of prizes, increased grants, and the opportunity to obtain more generous sponsorship arrangements. In both of these cases, the individual taxpayers were rewarded for their individual efforts in their field of expertise. When all the above factors are applied to the conditions under which the funds were awarded to your individual circumstances, the money does not take on the character of ordinary income as receipt of the money is one step removed from your income producing activities and was not for your individual efforts alone. | Detailed Reasoning - In summary:: The prize was not a common incident of your occupation; the prize money was the outcome from being a contestant in a team based television show. The prize was made voluntarily by the prize giver. Although you worked on the show which in turn provided a profit, the prize money you received came from the efforts of other people which you had no association with as well as the team you were involved with. There is not a close enough nexus between the works personally carried out by you during the show and the prize money which you received. The prize was given out at the end result of the television show; the motive was simply one of encouragement to enter the show and entertainment. You did not rely on the prize for general living expenses. You are the owner of your own company and earn a living from that. The prize from the show was simply a bonus gained at the completion of the show. Assessable income - statutory income Section 6-10 explains that your assessable income also includes amounts of statutory income that do not fall within the concepts of ordinary income but are included by other provisions of taxation legislation. Section 10-5 lists those provisions and included in this list is section 15-2. Section 15-2 advises 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 of or services rendered by you. We need to consider whether the money you won was granted 'in relation directly or indirectly to, any employment or of services rendered by you.' The leading cases in connection with this question are Federal Commissioner of Taxation v. Dixon and Scott v. Federal Commissioner of Taxation . In both cases it was decided that the phrase 'an indirect consequence of employment' was not an open ended concept. Rather, there must still be a connection between the payment and the employment such that the receipt 'is in a relevant sense a product' of the employment. Taxation Ruling IT 167 Treatment for income tax purposes of radio & television competition prizes explains at paragraph 5 that a prize or an award won in relation to your income producing activities would have the nature of being assessable income. For example, a "best player" award won by a professional footballer in a newspaper competition, or a prize won by an author in a literary competition, would have the character of income. | Detailed Reasoning - Application to your circumstances: It cannot be said that the money you received was a product of your employment or business activities. The tasks set out for the contestants were diverse and were carried out as a team, relying on each team members' own personal skills; not carried out independently, relying on your own personal endeavours. As you have pointed out, you are qualified in a specific area; you are not a professional in the area of expertise the show was based on. The value of the prize is therefore not caught by section 15-2. As the money you received does not constitute either ordinary or statutory income, it is not assessable income under either section 6-5 or section 6-10.

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