Private ruling: Whether funds received are assessable income
Date of advice: 28 October 2015
Published: October 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Are funds provided by another party via a Government Grant to the entity, which were used to provide services, assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes


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

Reasons for decision: Summary: A payment or other benefit received by a taxpayer is included in their assessable income if it is income according to ordinary concepts. Section 6-5 states, in part: 6-5(1) Your assessable income includes income according to ordinary concepts, which is called ordinary income. 6-5(2) If you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Although the expression 'income according to ordinary concepts' is not defined in the ITAA 1997, there is a substantial body of case law from which a number of factors have been drawn to determine whether an amount has the character of income according to ordinary concepts. Australian tax law generally requires the gross earnings or proceeds of a business, and not the gross profit, to be included in assessable income. Amounts received from transactions carried out in the ordinary course of business are income. In this case the entity received funds from a second party to perform a service. As the entity is in the business of providing those services the funds provided by the second party are considered ordinary income and therefore assessable under section 6-5 of the Income Tax Assessment Act 1997 .

Relevant facts: The entity provides services. | Another party received a government grant. | The second party provided funds received via the grant to engage the entity for services which is a normal part of its business. | The entity used the grant funds provided by the second party to provide services. | The funds were used to pay for travelling costs, per diems and fees for various persons.