Class Ruling CR 2014/49
Date of effect: 1 April 2013

What this ruling is about: 1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates. Relevant provisions 2. The relevant provisions dealt with in this Ruling are: All subsequent references in this Ruling are to the ITAA 1997, unless stated otherwise. Class of entities 3. The class of entities to which this Ruling applies is Australian and/or state rugby union players who hold current Rugby Union Players' Association (RUPA) membership and are: Qualifications 4. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling. 5. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 8 to 44 of this Ruling. 6. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then:

Class of entities or scheme: 3. The class of entities to which this Ruling applies is Australian and/or state rugby union players who hold current Rugby Union Players' Association (RUPA) membership and are: | Qualifications: 4. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling. 5. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 8 to 44 of this Ruling. 6. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 7. This Ruling applies from 1 April 2013. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). 8. The following description of the scheme is based on information provided by the applicant. The following documents, or relevant parts of them, form part of and are to be read with the description: 9. RUPA is an independent, representative sporting body established to represent the interests of past or present professional rugby union players. 10. Its membership base extends to individuals who formaly or currently play at a national or state level and includes both male and female players. 11. As stated in its Constitution, the objects of The RUPA are: 12. RUPA currently provides the following services to its members: | Employment status of players: 13. A Members of RUPA are not employees of RUPA. The only relationship between RUPA and the individual player is that of Association and Member. 14. Australian professional rugby union players are initially employed by their relevant State Union. If selected for national representation they will also be employed by the Australian Rugby Union (ARU). 15. The ARU is the governing body for rugby union in Australia. 16. A player enters into a SPC with both their State Union and ARU which details the terms of their employment. The contractual obligation of both possible employers is encapsulated in the SPC which contemplates the possibility of national representation. 17. Under the SPC, players are encouraged to undertake a program of career and training development. 18. The SPC contemplates players pursuing their training and development in defined rest periods. | Relationship between RUPA and ARU: 19. The ARU entered into CBAs with RUPA and the state rugby union bodies. 20. As a condition of the CBAs, the ARU is required to fund player development programs run by RUPA. 21. RUPA invoices the ARU annually for these costs. | Education and Training Grant Program: 22. In fulfilment of its functions and goals, RUPA has established and operates the Program to encourage players to begin planning and preparing for their lives after rugby union by providing payments for approved professional development expenses. 23. Under the Program, payments will only be provided for bona fide approved professional development pursuits which have been determined as clearly enhancing an applicant's vocationally assessed current or future career opportunities. 24. Approved professional development opportunities are as follows: 25. Payments will apply to course and student fees, prescribed course texts, private tuition or mentoring required in order for applicants to pursue the approved professional development. 26. The Program does not cover living expenses or items such as stationery, general equipment, transport or business set up costs. | Eligibility Criteria: 27. Eligibility for the Program is restricted to RUPA members and is based upon an objective analysis of the applicant meeting the criteria. 28. RUPA is under no legal obligation to approve an application. 29. As per its CBA, ARU is bound to provide a set maximum amount of financial assistance to RUPA each year to fund the Program. Increases in each year will be calculated on the basis of CPI or such other amounts as agreed to in writing. 30. Where player applications exceed the annual funds available in any year the following means testing of payments will occur regarding the assessment of claims: 31. Applicants who have stopped playing in Australia will be classified using their last contracted salary. 32. Funding levels are capped at a maximum of $5,000 per year with a career cap of $25,000 subject to the number of years an applicant has been contracted. 33. In some cases budgeted grant money may not be exhausted by allocations to players each year. This excess budgeted money is retained by RUPA. It will generally be made available as part of the following year's Program. 34. RUPA has formed a Player Development Program Committee to provide a governance role in determining selection criteria for the Program. 35. Allocation of funds under the Program is determined at the absolute discretion of the Player Development Program Committee. The value of payment provided will be determined by the number of applications, the type of course being completed and the applicant's commitment to study. 36. The current Player Development Program Committee comprises the following: 37. It is compulsory that applicants must have undertaken an individual career assessment, transitional assessment (including vocational assessment) or seasonal review with a State Advisor within two months prior to applying for funds. Applicants must also have developed a history of pursuing tertiary, trade or vocational studies or be actively seeking career options available to them. 38. In practice, the applicant will meet with a RUPA employed Player Development Manager to map out a plan with respect to education and career development for their possible employment prospects in their post rugby life. 39. Payments will not be provided until the application has been approved by the national Player Development Manager. 40. There are no obligations on the funding recipients to provide any services, make appearances or similar activities for RUPA or anyone else as a result of receiving a payment. | Payment Process: 41. Before RUPA reimburses the applicant for the course fees the player must successfully complete the course. 42. Payments will be made upon receiving a dated invoice or receipt for the claimed amount of legitimate educational expenses from an accredited education institution. RUPA will then provide an electronic funds transfer for the approved amount. 43. Payments will be made either directly to the educational institution and/or to the player. 44. No amount of funding is provided by a commercial sponsor. | Ordinary income: 45. Amounts received under the Education and Training Grant Program are not assessable as ordinary income under section 6-5. | Statutory income: 46. Amounts received under the Education and Training Grant Program are not assessable as statutory income under section 15-2. | Fringe benefits tax: 47. A payment under the Education and Training Grant Program, being the relevant benefit, made to a member of RUPA who is also an employee of a State Union and/or ARU will not result in an applicant having a reportable fringe benefit amount for the purposes of Part XIB of the FBTAA. | Capital gains tax: 48. There are no CGT consequences when an eligible player receives amounts under the Education and Training Grant Program. Commissioner of Taxation 18 June 2014 49. A payment or other benefit received by a taxpayer is included in assessable income if it is: | Ordinary income: 50. Subsection 6-5(1) states that the assessable income of a taxpayer includes income according to ordinary concepts (ordinary income). 51. The legislation does not provide specific guidance on the meaning of income according to ordinary concepts. However, a substantial body of case law exists which identifies likely characteristics. 52. In GP International Pipecoaters Pty Ltd v. Federal Commissioner of Taxation, the Full High Court stated: 53. Amounts that are periodical, regular or recurrent, relied upon by the recipient for their regular expenditure and paid to them for that purpose are likely to be ordinary income, [2] as are amounts that are the product, in a real sense, of any employment of, or services rendered by, the recipient. [3] Amounts paid in substitution for salary or wages foregone or lost may also be ordinary income. [4] 54. Ultimately, whether or not a particular receipt is ordinary income depends on its character in the hands of the recipient. [5] The whole of the circumstances must be considered [6] and the motive of the payer may be relevant to this consideration. [7] 55. In Scott v. Federal Commissioner of Taxation, [8] Windeyer J considered whether a gratuitous payment to the taxpayer's solicitor was income. His Honour held that, to be income, the gratuitous payment had to be in a relevant sense a product of the donee's income-producing activities. [9] In Federal Commissioner of Taxation v. Harris, [10] a bank made a lump-sum payment to supplement a former employee's pension so as to alleviate the negative effects of high inflation. The majority held that the payment was not a product of the former employment and this was an important element in finding that the payment was not income. 56. There is no employment or business relationship between the individual players and RUPA. A successful applicant is not required to enter into any contractual relationship with either the RUPA or a commercial sponsor to perform services of any kind in return for the payment of the grant monies. RUPA is under no legal obligation to approve an application. 57. Payments can be applied to course and student fees, prescribed course texts, private tuition or mentoring required in order to pursue approved professional development. Payments do not specifically contribute towards the player's living expenses. Payments are only made for approved, substantiated expenses. 58. The timing of a payment varies, depending on the expense claimed. Payments are only made upon receipt of a dated invoice or receipt. 59. The payments are not periodic payments, even if the expense should arise more than once. The payment is not expected or relied upon by the recipient to meet ordinary living expenses. 60. These factors, when considered together, lead to the conclusion that payments under the Program are not ordinary income under subsection 6-5(1). | Statutory income: 61. Section 6-10 provides that a taxpayer's assessable income includes statutory income amounts that are not ordinary income but are included as assessable income by another provision. 62. Section 10-5 lists provisions about statutory income and included in this list is section 15-2. 63. Section 15-2 provides that the value of all allowances, gratuities, compensation, benefits, bonuses and premiums allowed, given or granted, directly or indirectly in respect of employment or services rendered is included in assessable income. 64. A payment under the Program will be statutory income under section 15-2 if it is provided to the eligible player in respect of, for, or in relation directly or indirectly to, any employment or services rendered by the eligible applicant. 65. There is no employment relationship between the grant recipient and RUPA. Furthermore, the documents explaining the scheme establish that the recipients are not providing services to the RUPA. The recipients are required to meet certain conditions in order to qualify for payment of the grant. These do not amount to the rendering of services to RUPA. 66. As such the payments are not assessable under section 15-2 because the players are not considered to be employees, nor are they rendering services to RUPA. | Fringe benefits tax: 67. In general terms, a 'fringe benefit' is a 'benefit' provided to an employee in respect of the employee's employment that is not an exempt benefit. 68. The definition of 'benefit' in subsection 136(1) of the FBTAA includes any right, privilege, service or facility. 69. The definition of a fringe benefit is also contained in subsection 136(1) of the FBTAA. It is not confined to benefits that are provided to an employee or to an associate by an employer or an associate of the employer. Under paragraphs (e) and (ea) of the definition it may include benefits provided by others under an arrangement or where the employer or associate knowingly participate in or facilitate the provision of the benefits, or the promotion of a scheme or plan involving the provision of the benefits. However, to constitute a fringe benefit as defined, the benefit must be provided in respect of the employment of an employee and not be excluded by any of the specific exclusions within the definition. 70. Under a SPC a player (who may be a recipient of a benefit under the Program) is employed by their State Union and/or the ARU who are associates as defined in the FBTAA. 71. RUPA is the provider of the benefits under the Program. 72. RUPA is neither an employer of any recipient of a benefit under the Program nor an associate of ARU or any State Union. 73. To determine whether an applicant (who is an employee of their relevant State Union and/or the ARU) will have a reportable fringe benefits amount for the purposes of Part XIB of the FBTAA, we need to consider amongst other considerations, whether the applicant receives a fringe benefit. | Payments by ARU: 74. A Payment by the ARU to RUPA for the costs of funding the Program (in part or in full) does not give rise to a fringe benefit as the identity of each employee who will apply for and receive a benefit from RUPA under the Program will not be known with sufficient particularity at the time the ARU pays the invoice. Such a payment is not made in respect of the employment of an employee. 75. However, we need to consider and determine whether a benefit provided under the Program to a member of RUPA, who is also an employee or former employee of the ARU or a State Union, being a payment of the employee's approved professional development expenses, falls within the definition of fringe benefit. 76. Based on the scheme as described and notwithstanding that a benefit provided to an employee under the Program is not provided by the employer or an associate of the employer, it is considered that such a benefit will fall within paragraph (e) or paragraph (ea) of the definition of fringe benefit in subsection 136(1) of the FBTAA and an employee will have received a benefit as defined in subsection 136(1) of the FBTAA. 77. Therefore, for a payment made under the Program to come within the definition of a fringe benefit, what must be established is that the benefit is provided in respect of the employment of the employee (the employment connection test) and that none of the exclusions in the definition apply to the benefit. | In respect of employment: 78. The term 'in respect of employment' has been considered by the courts on numerous occasions. In J and G Knowles and Associates Pty Ltd v. Commissioner of Taxation [11] the full Federal Court examined the definition of fringe benefit and noted that: 79. If a benefit provided to an applicant under the Program does have a sufficient or material connection with any current or previous employment of the applicant with the ARU or their State Union it will be a fringe benefit. On the other hand, a benefit will not be a fringe benefit if the connection or relationship between the benefit and the recipient's employment is merely causal. 80. Whether or not there is a sufficient connection between an applicant's employment and a benefit received under the Program is a question of fact that needs to be determined on an objective basis taking all relevant facts into account. | Connection between the benefit and a player's employment: 81. The following is a summary of the connection or relationship between the benefits provided to an employee under the Program and the employment of the employee: 82. The Commissioner considers that the benefits provided to an applicant under the Program do not have a sufficient or material connection with current or previous employment of the applicant with the ARU or a State Union to fall within the definition of a fringe benefit for the purposes of the FBTAA. | Capital gains tax: 83. There are no CGT consequences as a result of an applicant receiving an amount under the Program. 84. The following is a detailed contents list for this Ruling: © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Not previously issued as a draft

Ruling: Ordinary income: 45. Amounts received under the Education and Training Grant Program are not assessable as ordinary income under section 6-5. | Statutory income: 46. Amounts received under the Education and Training Grant Program are not assessable as statutory income under section 15-2. | Fringe benefits tax: 47. A payment under the Education and Training Grant Program, being the relevant benefit, made to a member of RUPA who is also an employee of a State Union and/or ARU will not result in an applicant having a reportable fringe benefit amount for the purposes of Part XIB of the FBTAA. | Capital gains tax: 48. There are no CGT consequences when an eligible player receives amounts under the Education and Training Grant Program. Commissioner of Taxation 18 June 2014


Appendix: 49. A payment or other benefit received by a taxpayer is included in assessable income if it is: | Ordinary income: 50. Subsection 6-5(1) states that the assessable income of a taxpayer includes income according to ordinary concepts (ordinary income). 51. The legislation does not provide specific guidance on the meaning of income according to ordinary concepts. However, a substantial body of case law exists which identifies likely characteristics. 52. In GP International Pipecoaters Pty Ltd v. Federal Commissioner of Taxation, the Full High Court stated: 53. Amounts that are periodical, regular or recurrent, relied upon by the recipient for their regular expenditure and paid to them for that purpose are likely to be ordinary income, [2] as are amounts that are the product, in a real sense, of any employment of, or services rendered by, the recipient. [3] Amounts paid in substitution for salary or wages foregone or lost may also be ordinary income. [4] 54. Ultimately, whether or not a particular receipt is ordinary income depends on its character in the hands of the recipient. [5] The whole of the circumstances must be considered [6] and the motive of the payer may be relevant to this consideration. [7] 55. In Scott v. Federal Commissioner of Taxation, [8] Windeyer J considered whether a gratuitous payment to the taxpayer's solicitor was income. His Honour held that, to be income, the gratuitous payment had to be in a relevant sense a product of the donee's income-producing activities. [9] In Federal Commissioner of Taxation v. Harris, [10] a bank made a lump-sum payment to supplement a former employee's pension so as to alleviate the negative effects of high inflation. The majority held that the payment was not a product of the former employment and this was an important element in finding that the payment was not income. 56. There is no employment or business relationship between the individual players and RUPA. A successful applicant is not required to enter into any contractual relationship with either the RUPA or a commercial sponsor to perform services of any kind in return for the payment of the grant monies. RUPA is under no legal obligation to approve an application. 57. Payments can be applied to course and student fees, prescribed course texts, private tuition or mentoring required in order to pursue approved professional development. Payments do not specifically contribute towards the player's living expenses. Payments are only made for approved, substantiated expenses. 58. The timing of a payment varies, depending on the expense claimed. Payments are only made upon receipt of a dated invoice or receipt. 59. The payments are not periodic payments, even if the expense should arise more than once. The payment is not expected or relied upon by the recipient to meet ordinary living expenses. 60. These factors, when considered together, lead to the conclusion that payments under the Program are not ordinary income under subsection 6-5(1). | Statutory income: 61. Section 6-10 provides that a taxpayer's assessable income includes statutory income amounts that are not ordinary income but are included as assessable income by another provision. 62. Section 10-5 lists provisions about statutory income and included in this list is section 15-2. 63. Section 15-2 provides that the value of all allowances, gratuities, compensation, benefits, bonuses and premiums allowed, given or granted, directly or indirectly in respect of employment or services rendered is included in assessable income. 64. A payment under the Program will be statutory income under section 15-2 if it is provided to the eligible player in respect of, for, or in relation directly or indirectly to, any employment or services rendered by the eligible applicant. 65. There is no employment relationship between the grant recipient and RUPA. Furthermore, the documents explaining the scheme establish that the recipients are not providing services to the RUPA. The recipients are required to meet certain conditions in order to qualify for payment of the grant. These do not amount to the rendering of services to RUPA. 66. As such the payments are not assessable under section 15-2 because the players are not considered to be employees, nor are they rendering services to RUPA. | Fringe benefits tax: 67. In general terms, a 'fringe benefit' is a 'benefit' provided to an employee in respect of the employee's employment that is not an exempt benefit. 68. The definition of 'benefit' in subsection 136(1) of the FBTAA includes any right, privilege, service or facility. 69. The definition of a fringe benefit is also contained in subsection 136(1) of the FBTAA. It is not confined to benefits that are provided to an employee or to an associate by an employer or an associate of the employer. Under paragraphs (e) and (ea) of the definition it may include benefits provided by others under an arrangement or where the employer or associate knowingly participate in or facilitate the provision of the benefits, or the promotion of a scheme or plan involving the provision of the benefits. However, to constitute a fringe benefit as defined, the benefit must be provided in respect of the employment of an employee and not be excluded by any of the specific exclusions within the definition. 70. Under a SPC a player (who may be a recipient of a benefit under the Program) is employed by their State Union and/or the ARU who are associates as defined in the FBTAA. 71. RUPA is the provider of the benefits under the Program. 72. RUPA is neither an employer of any recipient of a benefit under the Program nor an associate of ARU or any State Union. 73. To determine whether an applicant (who is an employee of their relevant State Union and/or the ARU) will have a reportable fringe benefits amount for the purposes of Part XIB of the FBTAA, we need to consider amongst other considerations, whether the applicant receives a fringe benefit. | Payments by ARU: 74. A Payment by the ARU to RUPA for the costs of funding the Program (in part or in full) does not give rise to a fringe benefit as the identity of each employee who will apply for and receive a benefit from RUPA under the Program will not be known with sufficient particularity at the time the ARU pays the invoice. Such a payment is not made in respect of the employment of an employee. 75. However, we need to consider and determine whether a benefit provided under the Program to a member of RUPA, who is also an employee or former employee of the ARU or a State Union, being a payment of the employee's approved professional development expenses, falls within the definition of fringe benefit. 76. Based on the scheme as described and notwithstanding that a benefit provided to an employee under the Program is not provided by the employer or an associate of the employer, it is considered that such a benefit will fall within paragraph (e) or paragraph (ea) of the definition of fringe benefit in subsection 136(1) of the FBTAA and an employee will have received a benefit as defined in subsection 136(1) of the FBTAA. 77. Therefore, for a payment made under the Program to come within the definition of a fringe benefit, what must be established is that the benefit is provided in respect of the employment of the employee (the employment connection test) and that none of the exclusions in the definition apply to the benefit. | In respect of employment: 78. The term 'in respect of employment' has been considered by the courts on numerous occasions. In J and G Knowles and Associates Pty Ltd v. Commissioner of Taxation [11] the full Federal Court examined the definition of fringe benefit and noted that: 79. If a benefit provided to an applicant under the Program does have a sufficient or material connection with any current or previous employment of the applicant with the ARU or their State Union it will be a fringe benefit. On the other hand, a benefit will not be a fringe benefit if the connection or relationship between the benefit and the recipient's employment is merely causal. 80. Whether or not there is a sufficient connection between an applicant's employment and a benefit received under the Program is a question of fact that needs to be determined on an objective basis taking all relevant facts into account. | Connection between the benefit and a player's employment: 81. The following is a summary of the connection or relationship between the benefits provided to an employee under the Program and the employment of the employee: 82. The Commissioner considers that the benefits provided to an applicant under the Program do not have a sufficient or material connection with current or previous employment of the applicant with the ARU or a State Union to fall within the definition of a fringe benefit for the purposes of the FBTAA. | Capital gains tax: 83. There are no CGT consequences as a result of an applicant receiving an amount under the Program.


What this Ruling is about | NOT LEGALLY BINDING SECTION: | A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. | If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. | To determine whether a receipt is of an income or of a capital nature, various factors may be relevant. Sometimes the character of receipts will be revealed most clearly by their periodicity, regularity or recurrence; sometimes, by the character of a right or thing disposed of in exchange for the receipt; sometimes, by the scope of the transaction, venture or business in or by reason of which money is received and by the recipient's purpose in engaging in the transaction, venture or business. [1] | ...Whatever question is to be asked, it must be remembered that what must be established is whether there is a sufficient or material, rather than a, causal connection or relationship between the benefit and the employment... | Education and Training Grants Program | Appendix 2 - Detailed contents list


Related rulings: TR 2006/10
Legislative references: ITAA 1936 26(e) ITAA 1997 6-5 ITAA 1997 6-5(1) ITAA 1997 6-5(4) ITAA 1997 6-10 ITAA 1997 10-5 ITAA 1997 15-2 TAA 1953 Copyright Act 1968
Case references: Federal Coke Co Pty Ltd v. Federal Commissioner of Taxation (1977) 34 FLR 375 [1977] FCA 3 77 ATC 4255 (1977) 7 ATR 519
Subject references: capital gains tax education payments employment relationship voluntary payments to sportspersons