Private ruling: Assessable income
Published: January 2014
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Is your employee bonus assessable income if it is not directly paid to you by your employer? | Yes

Relevant facts and circumstances: Your employment contract includes a bonus provision. The bonus is paid annually. You are contemplating entering into an arrangement with your employer where the bonus will not be paid directly to you. The bonus will be kept by your employer in a separate account where it will accumulate. After it reaches a specified amount you will have the option to invest in your employer and become a partner in return. If you do not exercise the option the money will be paid to you.

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

Reasons for decision: Summary: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. Income is assessable for income tax purposes, under section 6-5 of the ITAA 1997 , when the person is taken to have derived it. The term derived is explained in the subsection to mean when it is received or applied or dealt with in any way at the person's direction. In your case, the bonus payment is applied or dealt with on your behalf at the time your employer deposits it into the separate account. Regardless of the possibility that the payment will never be made directly to you should you exercise an option to invest in the firm, you are taken to derive it at the time it is applied or dealt with on your behalf. Accordingly, the payment is assessable income under section 6-5 of the ITAA 1997.