Private ruling: Fellowship and rewards
Published: July 2012
Ruling period: Year ended 30 June 2012 | Year ending 30 June 2013
Date scheme commenced: 1 July 2011

Ruling: Q1: Is your fellowship included as assessable income? | A1: Yes. | Q2: Are your rewards assessable income? | A2: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5. | Income Tax Assessment Act 1997 Division 51.

Reasons for decision: Summary: Your fellowship and rewards are regarded as assessable income as they have the character of income. | Detailed Reasoning - Detailed reasoning: 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. Ordinary income has generally been held to include three categories, namely, income form rendering personal services, income from property and income from carrying on a business. Other characteristics of income that have evolved from case law include receipts that: · are earned, · are expected, · are relied upon, and · have an element of periodicity, recurrence or regularity. The periodic fellowship payments you receive from organisation A relate to the services you are providing and are regarded as ordinary assessable income. The fellowship payments will therefore form part of your assessable income unless it is exempted by a provision of either the Income Tax Assessment Act 1936 or the ITAA 1997. Certain amounts of income are exempt from income tax under section 51-1 of the ITAA 1997 if the amount is of a type listed in the tables in Division 51 of the ITAA 1997. Item 2.1A of the table in section 51-10 of ITAA 1997 provides that, subject to the exceptions and special conditions contained within section 51-35 of the ITAA 1997, income received by way of a scholarship, bursary, educational allowance or educational assistance by a full-time student at a school, college or university is exempt from income tax. The conditions attached to your fellowship require you to render services. You are not a full time student. Therefore your fellowship income is not exempt under section 51-10 of the ITAA 1997. There are no other exemptions relevant to your fellowship. The fellowship income is therefore assessable. Although you are no longer classified as an employee by organisation A, the post retirement fellowship is related to your previous employment and is received because of your current work with organisation A. This income is not considered to be business income; rather it should be declared at income question 2 on the 2012 tax return as payments for your services. | Detailed Reasoning - Rewards: Windfall gains which result from winning a prize, a lottery or any other game of chance are not assessable. Also, a receipt that is a mere gift will not constitute income according to ordinary concepts. For example, if an award is attributable to the personal qualities of an individual, it is generally a gift and therefore not assessable income. 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 ( Squatting Investment Co Ltd v. Federal Commissioner of Taxation (1953) 86 CLR 570, (1953) 5 AITR 496; (1953) 10 ATD 126 ( Squatting Investment case ) § whether the prize or gift is of a kind which is a common incident of the recipient's calling or occupation ( Scott v. Federal Commissioner of Taxation (1966) 117 CLR 514; (1966) 10 AITR 367; (1966) 14 ATD 286 ( Scott's case ) § whether the prize or gift is made voluntarily § whether the prize or gift is solicited ( Hayes v. Federal Commissioner of Taxation (1956) 96 CLR 47; (1956) 6 AITR 248; (1956) 11 ATD 68 ( Hayes' case ) and Scott's case ) § whether the prize or gift can be traced to gratitude engendered by some service rendered by the recipient to the prize or gift donor ( Squatting Investment case ) § the motive of the prize or gift donor (though this factor is rarely decisive in itself) ( Hayes' case ); and § whether the recipient relies on the prize or gift for regular maintenance of themselves and any dependants ( Dixon's case ) and FC of T v. Blake (1984) 75 FLR 315; (1984) 15 ATR 1006; 84 ATC 4661). The Commissioner's view on the assessability of money received by way of awards and prizes is set out in Income Tax Rulings IT 2145, IT 2474 and IT 167. IT 2145 addresses BHP Awards for the Pursuit of Excellence which are made to Australians who have made outstanding contributions to the pursuit of excellence in their particular fields of endeavour and who may not yet be recognised for their achievements. The winners of the BHP Awards for the Pursuit of Excellence are chosen from six categories which are claimed to cover every occupation and pursuit so that entry is open to all, whether by nomination of others or self nomination. The judging of the awards is by special panels including experts in the particular category and anyone who has achieved excellence will be eligible in one category or another except for employees of BHP. The ruling states: 'Although undoubtedly it will be the case that awards sometimes will be made in respect of achievements directly related to a winner's vocation, business, etc., the nature of the award is that of a personal windfall or gain not having the qualities of income. Such awards therefore, will not be assessable income in the hands of recipients.' IT 2474 deals with the assessability of payments received under the Military Skills Award program. Military Skills Awards are made to successful participants in military skills competitions conducted in or between units in the Australian Regular Army and Army Reserve. For a member of the Australian Regular Army, participation in a military skills competition is regarded as part of his duties as an employee and the cash prizes are part of the pay and allowances arising from the performance of those duties. The cash prizes are therefore assessable income. IT 167 states in paragraph 5: A prize or award won in circumstances where it is an incident of the taxpayer's income producing activities (for example, a 'best player' award won by a professional footballer in a newspaper competition) or where it is part of the proceeds of a business conducted by the taxpayer (for example, a prize won by an author in a literary competition) would have the character of income. It is clear from the above that rewards will not constitute assessable income if they are received as a result of the personal qualities of the recipient. However, rewards that relate to a taxpayer's income producing activities will be assessable. In your case, the rewards are presented to those who work for organisation A, that is, the rewards are industry focussed. It is considered that your rewards are more aligned to the Military Skills Awards. The fact that you did not nominate yourself does not alter the nature of the payments. The rewards and your income earning activities are closely related. That is, the rewards are the product or consequence of your income producing activities. Accordingly the rewards are considered to be assessable income. This income should be declared at income question 2 on your 2012 tax return.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You receive a post retirement research fellowship stipend from your former employer (organisation A). Payments are received on a regular basis. | The fellowship is offered initially for a period of 12 months. | As a fellow, you are no longer considered to be an employee by organisation A. | You are required to spend an average of one day per week to carry out the work requirements of the fellowship. A condition of the fellowship is to work diligently and efficiently on the approved program of work. You are also required to mentor staff. | At the end of the year you are required to report on the progress of the work and submit a report on the work carried out. | You have also received rewards. | The rewards are open to employees of organisation A. | You did not nominate yourself for the rewards. Your boss nominated you. | The rewards were related to your years of service with organisation A. | Tax was withheld from the rewards. | You also operate as a sole trader with your professional services.