Private ruling: Assessability of income
Date of advice: 2 May 2018
Published: July 2018
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the award you received for research purposes assessable income? | A1: No. | Q2: Can you claim deductions for expenses relating to your trip for research purposes? | A2: No.

Relevant facts and circumstances: You have won an award from an international study society. This award offers acknowledgement and financial support to early careers scholars and aims to assist them in the development of an academic career. The award is given once a year. Selection is based on the merit of the candidate, the proposed research project and the uses to which the award will be put. You must submit an article for consideration to an academic, refereed journal within a specified period. You are casually employed in teaching at a university and as a researcher at a research organisation. You applied for the award to support a trip overseas to visit two research institutes. You expect your expenses to exceed the value of the award.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Subsection 6-5(1) | Income Tax Assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1997 Section 10-5 | Income Tax Assessment Act 1997 Section 15-2 | Income Tax Assessment Act 1997 Subsection 15-2(1)

Reasons for decision: Summary: A prize or gift will be assessable income if it is: ● income in the ordinary sense of the word (ordinary income), or ● the provisions of the tax law include it as assessable income (statutory income). | Detailed Reasoning - Ordinary income: Under subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997), ordinary income means income ‘according to ordinary concepts'. Generally, a gift or prize is regarded as a personal windfall gain and not as ordinary income unless you have received the prize or gift because of, in respect of, or in relation to any income-producing activity. 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 you received the prize ● whether the prize is of a kind which is a common incident of your calling or occupation ● whether the prize is made voluntarily ● whether the prize is solicited ● whether the prize can be traced to gratitude engendered by some service rendered by you to the prize donor ● the motive of the prize donor (through this factor is rarely decisive in itself), and ● whether you rely on the prize for regular maintenance of yourself and any dependants. Taxation Ruling IT 2145 Income tax: BHP awards for the pursuit of excellence - whether assessable income discusses the assessability of awards. These BHP Awards are made to Australians who have made outstanding contributions to the pursuit of excellence in their particular fields. IT 2145 provides that although these awards will sometimes be made with regard to achievements directly related to a winner's vocation the nature of the award is that of a personal windfall or gain not having the qualities of income. You are not employed by the awarding institution nor are you required to publish your research in the institution’s own journal. As merit is one of the selection criteria for the award, your previous body of research is an additional factor. When this is applied to the conditions under which the prize was awarded, the prize money does not take on the character of ordinary income as receipt of the prize is one step removed from your employment. That is, it was not received because of or in relation to your duties as an employee. In particular: ● The prize is not a common incident of your occupation ● The motive of the awarding body was altruistic, i.e. the aim of the award is to assist in the development of the winner’s academic career ● You do not rely on the prize money for general living expenses In Kelly v. Federal Commissioner of Taxation (1985)16 ATR 478 an employee footballer won a cash award for being the best and fairest player. The court held that the prize was clearly incidental to the taxpayer's employment as a footballer and that he was eligible to receive the payment by virtue of that employment. This sort of prize was a normal incident of that employment. The circumstances outlined in the above case can be contrasted with yours as you are not carrying on a business, nor is the prize in relation to your employment or a normal incident of that employment. The prize arose out of your vocation and to foster future contributions to your field of research, rather than being attributable to your role as an employee. | Detailed Reasoning - Statutory income: Under section 6-10 of the ITAA 1997 assessable income also includes statutory income. Statutory income is amounts that are not ordinary assessable income. Subsection 15-2(1) of the ITAA 1997 provides that the value to the taxpayer of all gratuities and benefits given or granted to them in respect to, or for, or in relation directly, or indirectly, to any employment will be included in their assessable income. It cannot be said that the prize was a product of your employment. Rather it was a reward to you for your intellectual ability and the introduction of new research findings in your field. The value of the prize is therefore not caught by section 15-2 of the ITAA 1997. As the prize you received does not constitute either ordinary or statutory income, it is not assessable income under either section 6-5 or section 6-10 of the ITAA 1997. | Detailed Reasoning - Deductibility of expenses: Section 8-1 of the ITAA 1997 allows a deduction for a loss or outgoing to the extent that it is incurred in gaining or producing your assessable income, but not to the extent that the loss or outgoing is incurred in producing exempt or non-assessable non-exempt income. As the prize you received is exempt income, no deduction is allowable for expenses incurred in producing that income under section 8-1 of the ITAA 1997.