Private ruling: Assessable Income - Prize
Date of advice: 8 August 2016
Published: September 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Is prize money won included in your assessable income under sections 6-5 or 6-10 of the Income Tax Assessment Act 1997 ? | A1: No

Relevant facts and circumstances: You participated in a competition You received a prize Prior to entering the competition you had no professional experience.

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

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 means income 'according to ordinary concepts'. | Detailed Reasoning - Ordinary income: Generally, a gift or prize is regarded as a personal windfall gain and not as ordinary income unless the taxpayer has received the prize or gift because of, in respect of, or in relation to any income-producing activity of the taxpayer. 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 • whether the prize or gift is of a kind which is a common incident of the recipient's calling or occupation • whether the prize or gift is made voluntarily • whether the prize or gift is solicited • whether the prize or gift can be traced to gratitude engendered by some service rendered by the recipient to the prize or gift donor • the motive of the prize or gift donor (through this factor is rarely decisive in itself), and • whether the recipient relies on the prize or gift for regular maintenance of themselves and any dependants. | 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. There must be a connection between the payment and the employment. The receipt must be a product of the employment. | Detailed Reasoning - Application to your circumstances: You entered a competition with a chance of winning a prize. You won the competition and received a cash prize. It is accepted that at the time you entered the competition, you were not a professional. Therefore, it is considered that your prize is not the product or consequence of income producing activities. The prize money is a windfall gain. Therefore, the prize money is not assessable as ordinary or statutory income.