Private ruling: Assessable income - reward
Date of advice: 18 November 2016
Published: March 2017
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Is the payment you received assessable income? | A1: No

Relevant facts and circumstances: You were employed by a company. In 20XX you were made redundant. Whilst you were working at the company you became aware of illegal practices. You received a payment for being an informant in an illegal practice case brought by an industry group. In early 20YY you received a sum of money from the lawyers acting on behalf of the entity bringing the specific case. You showed this amount in your tax return.

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

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Generally, a reward, gift or prize is regarded as a personal windfall gain and not as ordinary income unless the taxpayer has received the reward, prize or gift because of, in respect of, or in relation to any income-producing activity of the taxpayer. In determining whether a reward, 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 the recipient received the prize or gift ● whether the prize or gift is of a kind which is a common incident of the recipient's 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 engendered by some service rendered by the recipient to the prize of gift donor the motive of the prize or gift donor (though this factor is rarely decisive in itself), and ● whether the recipient relies on the prize or gift for regular maintenance of themselves and any dependants. When the above factors are applied to the conditions under which your reward was given and your individual circumstances, the reward money does not take on the character of ordinary income as receipt of the reward is one step removed from your employment. That is, it was not received because of or in relation to your duties as an employee. In your case: ● the reward was not a common incident of your occupation ● the reward was made voluntarily by the reward giver ● the reward was not solicited (by the taxpayer) ● the reward cannot be traced to any services rendered to the reward giver ● the motive of the reward giver was altruistic; and ● you did rely on the reward money for general living expenses. The reward arose because you provided information to the industry group about your former employer, rather than being attributable to your role as an employee. Section 6-10 of the ITAA 1997 provides that a taxpayer's assessable income includes statutory income amounts that are not ordinary income but are included in assessable income by another provision. Section 15-2 of the ITAA 1997 provides that the value to the taxpayer of all gratuities and benefits provided to them in respect to, or for or in relation directly or indirectly to, any employment will be included in their assessable income. The issue in your case is whether the reward was granted 'in relation directly to or indirectly to, employment ....' In particular, whether the prize was granted 'indirectly' in relation to the taxpayer's employment. It cannot be said that the reward was a product of your employment. Rather it was a reward to you for information about practices happening at your former employer. The value of the reward is therefore not caught by section 15-2 of the ITAA 1997. As the reward received by you does not constitute either ordinary or statutory income it is not assessable income.