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Are payments the taxpayer received to cover the daily living expenses of a disabled person for whom the taxpayer provides care, included in assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. The payments received to cover the daily living expenses of a disabled person for whom the taxpayer provides care are not included in assessable income under section 6-5 of the ITAA 1997 as they are not in the nature of ordinary income.

The taxpayer cares for a disabled person.

The taxpayer received payments for the person's daily living expenses including food, drink, cleaning and laundry expenses.

The taxpayer pays for those daily living expenses.

Section 6-5 of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

Ordinary income has generally been held to include 3 categories, namely, income from rendering personal services, income from property and income from carrying on a business.

Paragraph 3 of Taxation Ruling IT 2639 defines 'income from personal services' and states that: '3. "Income from personal services" is income that an individual taxpayer earns predominantly as a direct reward for his or her personal efforts by, for example, the provision of services, exercise of skills or the application of labour. The inclusion of predominantly in this definition allows for the situation where personal services involve the use of some equipment, for example the drawing board of an architect.'

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.

Taxation Ruling 92/15 considers the difference between an allowance and a reimbursement and states at paragraph 3 that a payment qualifies as a reimbursement when the provider considers the expense to be its own and the recipient incurs the expense on behalf of the provider. Paragraph 4 of TR 92/15 states that the meaning of reimburse includes payments made in advance of the expenditure.

The amount received by the taxpayer is not for personal services, rather it is more in the nature of a reimbursement received for the amounts expended to care for the disabled person. Any payments received are reimbursements paid to defray the costs to the taxpayer of looking after the disabled person ( FC of T v. Groser (1982) 13 ATR 445; 82 ATC 4478).

Accordingly, the payments received by the taxpayer are not ordinary income and are not included in the taxpayer's assessable income under section 6-5 of the ITAA 1997.