Private ruling: Assessable income
Date of advice: 19 October 2016
Published: January 2017
Date scheme commenced: 1 July 20XX

Ruling: Q1: Does the total commission income form part of your assessable income? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1936 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. Ordinary income includes salary and wages and commission. If an amount would be ordinary income apart from the fact that you have not received it, it becomes assessable income as soon as it is applied or dealt with in any way on your behalf or as you direct (subsection 6-5(4) of the ITAA 1997). Commission derived or received from a membership is generally assessable to the member as they are legally and beneficially entitled to the money. As you are the owner of the membership at the time the commission was paid, you are entitled to the income. Any agreement to pass on the commission to your relation is a family arrangement that does not change the assessability of the income. It is acknowledged that your relation helped earn the commission, however this is more a private and domestic arrangement that does not change the nature of the payment in your hands. The fact that you applied for an ABN and registered for GST supports the fact that the membership commission belongs to you. Any agreement to pay your relations or the company all or part of the commission has no effect for taxation purposes. The commission income is assessable income to you.

Relevant facts: A relation signed up with entity A. | Entity A is a XX company that produces various products. | The relation signed as a member using your name. The main purpose to become a member was to enable the family to enjoy member's prices. | As your family started to use the products, they started to tell friends about entity A and the friends signed up with you as the sponsor. | Entity A contacted you to register for an ABN as your commission had increased. | Realising that the arrangement was in fact a family business, you and your relations formed a company. The company was set up with X directors and shareholders. | You then contacted entity A to switch your ABN to the company's. However entity A would do that only if you were the sole director and sole shareholder. | The commission you received from entity A was fully paid to your relation. | Your relation did most of the relevant activities. | Your relations have now signed up with entity A.