Private ruling: Apprenticeship incentive payments
Published: March 2014
Ruling period: Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2013

Ruling: Q1: Do the incentive payments you will receive under the Australian Apprentices Incentive Program (the Program) form part of your assessable income? | A1: Yes.

Relevant facts and circumstances: You employ apprentices. You expect to receive incentive payments under the Program in the 2013-14 and subsequent financial years. Under the Program you expect to receive the following incentive payments: • commencement - paid to an employer who commences an apprentice in eligible Certificate III or IV qualifications • rural and regional skills shortage incentive - paid to an employer for employing an apprentice at Certificate III or IV level in an identified skills shortage occupation in rural and regional areas.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 51-10 | Income Tax Assessment Act 1997 Subsection 52-140(3)

Reasons for decision: Summary: The incentive payments you receive under the Program form part of your assessable income as they relate to your business activities. The payments do not fall within the exemption provisions of the taxation legislation. | Detailed Reasoning - Detailed reasoning: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states that, if you are an Australian resident, your assessable income includes ordinary income you 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 from 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. Proceeds from carrying on a business are income according to ordinary concepts and are included in assessable income. You receive payments under the Program. The Department of Education, Employment and Workplace Relations (DEEWR) website states: The objective of the program is to develop a more skilled Australian workforce that develops long-term benefits for our nation and our international competitiveness. This is achieved by encouraging employers to open up genuine opportunities for skills-based training of their employees, through provision by the Australian Government of financial incentives to employers who employ and train an Australian Apprentice (apprentice or trainee). Taxation Ruling TR 2006/3 discusses the taxation treatment of government payments to industry (GPI) to assist the recipient to continue, commence or cease business. Paragraph 12 of TR 2006/3 states that a GPI to assist with business operating costs or liabilities is ordinary income in the hands of the recipient and is assessable under section 6-5 of the ITAA 1997 in the financial year in which it is derived. At paragraph 37, TR 2006/3 provides the following example of a payment to assist with employing an apprentice: A business is eligible to apply for a government payment to assist with the initial cost to the business of employing an apprentice. A payment to an employer as a financial incentive to take on an apprentice or continue to employ an apprentice is received in the ordinary course of the business. As such, it is ordinary income and assessable under section 6-5 [of the ITAA 1997]. As discussed above, the incentive payments received under the Program are considered to have been received as part of the ordinary course of your business. Therefore, the incentive payments are considered to be ordinary income and assessable under section 6-5 of the ITAA 1997. Exempt income An amount may be considered ordinary income but is not included in your assessable income due to the operation of a specific section of the legislation which exempts the amount from tax. | Detailed Reasoning - Section 51-10 of the ITAA 1997: Section 51-10 of the ITAA 1997 provides that the following amounts are exempt from tax: • a payment made under the Commonwealth Rebate for Apprentice Full-Time Training Scheme (the CRAFT Scheme) where the payment is for an apprentice who commenced working for the employer prior to 1 January 1998 • a payment known as the Apprenticeship Wage Top-Up • a bonus for the early completion of an apprenticeship • a payment under the program known as Skills for Sustainability for Australian Apprentices, and • a payment under the program known as Tools for Your Trade (within the program known as the Australian Apprenticeships Incentives Program). The incentive payments you receive are either not paid under the programs specifically mentioned above or you do not receive the particular payment referred to. As such, the incentive payments you receive are not exempt from tax and are included in calculating your assessable income for the financial year. | Detailed Reasoning - Section 52-140 of the ITAA 1997: Subsection 52-140 of the ITAA 1997 states that the supplementary amount of a Commonwealth education or training payment is exempt from income tax. A Commonwealth education or training payment includes a payment by the Commonwealth, or in connection with a payment by the Commonwealth, of an allowance or reimbursement to or on behalf of a participant in a Commonwealth labour market program. Clause 2.12 of the Explanatory Memorandum (EM) to the Tax Laws Amendment Act (No. 1) 1997 , which introduced the amendment exempting from income tax all or part of a Commonwealth education or training payment, states: A payment is a Commonwealth education or training payment only if it is paid by the Commonwealth as an allowance or reimbursement. Consequently, payments made in connection with an education or training program to, for example, employers or service providers are not covered by the definition. Those payments are in the nature of subsidies or remuneration for services. As can be seen from the EM payments made to employers are not considered to be Commonwealth education or training payments for the purposes of the income tax legislation. Therefore, the incentive payments you receive are not exempt from tax on the basis of section 52-140 of the ITAA 1997.