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Are 'GP Links' Amalgamation Incentive payments received by the taxpayer, a medical practitioner, assessable as ordinary income under subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. 'GP Links' Amalgamation Incentive payments received by the taxpayer, a medical practitioner, are not assessable as ordinary income under subsection 6-5(1) of the ITAA 1997.

The taxpayer, a medical practitioner, received two payments from the Commonwealth Department of Health and Aged Care (DHAC) under the 'GP Links' Amalgamation Incentive Program.

The 'GP Links' program was established to provide general medical practitioners with incentives to increase the range and quality of services offered to the public. The program encourages small general practitioners to amalgamate their existing medical practices to create larger general practices. Under this program, the taxpayer received two incentive payments as detailed below:

The Stage One incentive payment is to assist a practice to investigate the costs, benefits and feasibility of amalgamation. The practice must certify that the payment will be spent only on the investigation of amalgamation options. The recipient must provide to the DHAC a report listing the benefits of amalgamation.

The Stage Two incentive payment is to assist the practice with costs associated with the actual amalgamation. The payment is made in advance of the actual amalgamation of the practice (that is, physical collocation of the amalgamating practices).

The 'GP Links' program stipulates that the Stage Two payment constitutes a contract between the practice and the Commonwealth, and that all or some of the incentive payment a practice receives will be recoverable if the practice fails to meet certain conditions within the specified time-frames. These conditions are briefly: (a) evidence that a new amalgamated practice is actually operating (b) evidence of the closure of all the small practices participating in the amalgamation, and (c) evidence of progress toward accreditation by the new practice.

Subsection 6-5(1) of the ITAA 1997 provides that the assessable income of a taxpayer includes income according to ordinary concepts, however, the legislation does not define 'income according to ordinary concepts'. Instead, a substantial body of case law has evolved to identify various factors that indicate the nature of ordinary income.

Periodicity, recurrence or regularity are some of the main determinants of ordinary income. The 'GP Links' incentive payments received by the taxpayer are once-only, lump-sum payments and lack the regularity that typifies ordinary income.

In addition, the payments were not received in relation to the carrying on of the daily business activities of the medical practice, but rather in relation to the structure of the entity that conducts the business.

The proceeds of an isolated transaction which is not in the ordinary course of business, even if received as a lump sum, may however be income according to ordinary concepts if the purpose of the transaction is to make a profit.

The aim of the Stage One incentive payment is to enable the practice to offset some (but not necessarily all) of the costs associated with investigating the feasibility of amalgamating with other similar practices to form a new single larger practice.

The aim of the Stage Two incentive payment is to offset some (but not necessarily all) of the costs associated with establishing the new amalgamated practice.

Given this, the transactions have not been entered into by the taxpayer with a view to making a profit.

In view of the above, the 'GP Links' incentive payments received by the taxpayer are not considered to be ordinary income. Accordingly, these payments are not assessable income of the taxpayer under subsection 6-5(1) of the ITAA 1997.