Private ruling: income
Published: May 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Is the payment you received from the company assessable income? | A1: Yes.

Relevant facts and circumstances: You gained specialist knowledge in a subject as a result of your employment. You were approached by an overseas company to provide advice of the subject. You were asked various technical and usage questions. Because of your common history, you were happy to oblige and responded to his questions without any thought of or requirement to recompense and none was provided. In 2011, the overseas company asked you to provide a report using your specialist knowledge. Unlike previous interactions, there were issues regarding confidentially requirements and the protection of intellectual property. You were asked to sign a confidentially agreement regarding the project and enter into a one year consultancy agreement with the company. The consultancy agreement is intended primarily to cover the project requirements. The agreement specifically states that you are not an employee of the company. The consultancy agreement does not include any details regarding remuneration. You advised the company that you were not in business as a consultant, and that you were happy to assist provided you were given reasonable insurance and liability protection. You provided assistance over several months and throughout this period; you were frequently offered payment by the company. In 2012, the company sent you a single payment. You did not provide an invoice, timesheet or any standard business justification. The company did not provide any written statement describing the specific purpose for the payment.

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

Reasons for decision: Summary: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states that, if you are an Australian resident, your assessable income includes ordinary income you 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 from rendering personal services, income from property and income from carrying on a business. Ordinary income received by an individual usually has a direct relationship to some for of input or investment made by the individual. Other characteristics of income that have evolved from case law include receipts that are earned, expected, relied upon, and have an element of periodicity, recurrence or regularity. In your case, your previous employment positions allowed you to acquire specialist knowledge. An overseas company approached you to provide a report using your specialist knowledge and you entered into a one year consultancy agreement with the company. The agreement required you to provide specific advice and a single payment was made to you by the company. The amount you received is considered a payment for personal services rendered by you. There is a direct relationship between the payment and the consultancy service you provided. The payment is income according to ordinary concepts and will be assessable income under subsection 6-5(2) of the ITAA 1997).

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