Private ruling: Assessable income- Fellowship award
Published: July 2013
Ruling period: Year ended 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2012

Ruling: Q1: Is the Fellowship grant awarded to you included as assessable income? | A1: Yes

Relevant facts and circumstances: You are the recipient of a fellowship award. You are to receive the award in instalments. You are employed by an organisation and have a career in the field of the award. Your award does not relate to one of your successes but in fact to your whole career, past and present. You did not nominate yourself and did not expect to be nominated for this award.

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 speaking, a receipt will be income according to ordinary concepts if it is a receipt arising out of a taxpayer's employment, business activities or income producing activities. This will be so even if the receipt is not directly related to any service provided by the recipient to the donor ( FC of T v. Dixon (1952) 86 CLR 540 ( Dixon's case )). However, 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 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 Taxation 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 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." 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. 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 under section 6-5 of the ITAA 1997. When considering prizes won by professional sportspersons, 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 prizes will not constitute assessable income if they are received as a result of the personal qualities of the recipient. However, prizes that relate to a taxpayer's income producing activities will be assessable under section 6-5 of the ITAA 1997. In your case, the fellowship award is intended to support the careers of persons in your field of expertise. The BHP Pursuit of Excellence Awards covers many occupations and pursuits and are not open to employees of BHP. However, the Military Skills Awards are limited to Army employees. It is considered that your fellowship award is more aligned to the Military Skills Awards. Where an employee or person wins an award offered by their peers, the nexus between the award and the employment is such that the award would constitute income under ordinary concepts. The fact that you did not nominate yourself does not alter the nature of the payment. The fellowship award and your career and employment are closely related. That is, the award is the product or consequence of your income producing activities. Accordingly the award is assessable income under section 6-5 of the ITAA 1997.