Private ruling: Making Work Pay tax credit
Published: September 2011
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Is the tax credit received from overseas assessable income? | A1: No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are an Australian resident for tax purposes. You are also a citizen of country A. You work in Australia and do not receive income from overseas. You have received a payment from country A as part of their economic stimulus package. The payment was a refundable tax credit paid to most wage earners. As you earned income, you were eligible for the credit. You received a refund of the full amount of the credit.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 6-10. | Income Tax Assessment Act 1997 Section 6-15. | Income Tax Assessment Act 1997 Section 10-5 | Income Tax Assessment Act 1997 Section 15-2

Reasons for decision: Detailed Reasoning - Ordinary income: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes the ordinary income they 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 form 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. You received your payment as part of an economic stimulus package. The payment is not considered to be earned by you as it does not relate to services performed or income from carrying on your business. The payment is also a one-off payment and thus it does not have an element of recurrence or regularity. Although the payment may be said to be expected, and perhaps relied upon, this expectation arises following the announcement of the economic stimulus package. The tax credit is not considered to be ordinary income. Therefore, these payments do not give rise to assessable ordinary income. | Detailed Reasoning - Statutory income: Statutory income is not ordinary income, but is included in assessable income by specific provisions of the income tax law (section 6-10 of the ITAA 1997). These specific provisions are listed in section 10-5 of the ITAA 1997. The list includes section 15-2 of the ITAA 1997. Section 15-2 of the ITAA 1997 provides that your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly to any employment of or services rendered by you. An issue in therefore whether the tax credit was granted in relation directly or indirectly to your employment. The question of an indirect or direct relation to employment was discussed in FCT v. Dixon (1952) 86 CLR 540; (1952) 10 ATD 82. In this case it was decided that the phrase an indirect consequence of employment was not an open ended concept. Rather, there must be a connection between the payment and the employment such that the receipt is in a relevant sense a product of the employment. Having regard to the tax credit received, it cannot be regarded, in a real sense, as a product of your employment. Nor is it a benefit provided for services rendered. Although you had to be a wage earner to be entitled to the credit, it is not regarded as being assessable under section 15-2 of the ITAA 1997. The tax credit is not assessable under any other taxation provision. As the tax credit received by you 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.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.