Private ruling: Assessable income - when is the income derived
Published: October 2013
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 1 July 2012

Ruling: Q1: Is your assessable income derived when the invoice issued to the Customer is paid? | A1: Yes.

Relevant facts and circumstances: The Company operates a manufacturing and wholesale business selling products. The Company accounts for sales revenue on an accruals basis. The Company has supplied goods to a Customer in accordance with the Supply Agreement entered into between the Company and the Customer. Clause 6.1 of the Supply Agreement provides that: · the risk of loss or damage to a Product will pass to the Customer in accordance with the Freight Terms. Where the Freight Terms do not specify when the risk of loss or damage to a Product will pass to the Customer, the risk of loss or damage to a Product will pass to the Customer on delivery of the Product to the Customer's warehouse. Clause 6.2 of the Supply Agreement provides that: · title to a Product will pass to the Customer on payment of the invoice. Clause 7.1 of the Supply Agreement provides that: · the Customer must pay, by electronic funds transfer directly to the bank account nominated by the Company, the Price (and, if applicable any GST) in respect of the Products the Customer orders from the Company under clause 4.5 within 30 days after the later of: o receipt of an invoice from the Company; and o the time at which risk of loss or damage to a Product will pass to the Customer in accordance with clause 6.1. It is apparent to the Company that upon delivery of the product to the customer, the customer may, in some cases, immediately place such goods for resale in the course of their business.

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

Reasons for decision: Summary: We consider that income from the sale of goods under a conditional contract, which is assessable to the seller on an accruals basis, is derived when a debt for the sale of those goods is created under the contract of sale. Generally, we consider a debt is created under the contract of sale when the goods are delivered by the seller to the purchaser once the seller has accepted the purchaser's order. However, our view differs where the contract is subject to a Romalpa or retention of title clause whereby the title in the goods passes when payment is made. In your case, as your Supply Agreement is subject to a Romalpa clause we consider the income is not derived when the Company issues the invoice. The income is derived when title to the goods passes to the Customer on payment of the invoice in accordance with clause 6.2 of the Supply Agreement.