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1 Is the award that you received assessable income under either section 6-5 or section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

1 Yes. This ruling applies for the following period: Year ended 30 June 20XX The scheme commenced on: DD MM 20XX

Background You are a writer operating as a sole trader. Your business income generally consists of grants, book advances, fellowships, and royalties. You published a book. The book was entered into literary awards during the relevant income year. Entry fees were paid to enter the book into the literary awards. The book was shortlisted. The book won a monetary prize. The book was also selected for an overall award, with a monetary prize. You used the prize money for regular maintenance, such as living expenses. Awards and categories The Awards provide an opportunity to highlight the importance of literacy and to encourage everyone to enjoy and learn from the work of our writers. They are held to honour distinguished achievement by Australian writers, contribute to Australia's artistic reputation, and draw international attention to some of our best writers and to the cultural environment that nurtures them. The overall award is not open for public entry, but instead is chosen from the winners of each award category.

Income Tax Assessment Act 1997 section 6-5 Income Tax Assessment Act 1997 section 6-10

Ordinary income Your assessable income includes the ordinary income derived directly or indirectly from all sources under section 6-5 of the ITAA 1997. Ordinary income is referred to as income 'according to ordinary concepts'. This phrase is not defined under the legislation, but a large body of case law has developed to identify the factors that indicate if an amount is income 'according to ordinary concepts'. Typical examples of ordinary income include salary and wages, as well as proceeds of carrying on a business, rent, interest, and dividends. In Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215, Jordan CJ held that the meaning of 'income' was to be determined according to 'ordinary concept and usages'. Ordinary income will generally have the characteristics of being periodic, recurring, and regular. These characteristics of income have been emphasised by decisions in Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540 and Just v Federal Commissioner of Taxation (1949) 8 ATD 419. Payments which are received for labour or services will also constitute ordinary income ( Reuter v Federal Commissioner of Taxation (1993) 111 ALR 716).

The typical usage of the word 'income' in ordinary speech is to describe that which comes in as a reward for services. Amounts including salary, wages, commission, and tips are universally regarded as income and it is immaterial whether they are paid under or pursuant to a contract of service, or gratuitously. Generally, it will also be immaterial whether the amount paid is paid periodically or in a lump sum. What will matter is the character of the payment as a reward for services or, as it was put by Fullagar J in Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47 at 57-58, whether the receipt is a 'product' of the taxpayer's services. Ordinary income therefore generally bears a direct relationship to some form of input or investment made by the taxpayer. Section 6-10 of the ITAA 1997 provides that your assessable income includes statutory income amounts that are not ordinary income, but are included in assessable income by another provision. Assessability of awards The awards have not been made specifically exempt by a provision of the ITAA 1997.

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. ATO Interpretative Decision ATO ID 2002/644 Income Tax: Assessability of Prize (ATO ID 2002/644) discusses the factors that the Commissioner will consider when determining whether a prize is considered to be assessable income. These include: •                     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 of gift donor •                     the motive of the prize or gift donor (though 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 In Case V6 [1987] 88 ATC 140, a partner in a newsagency business won a prize in a newspaper sales competition. The Administrative Appeals Tribunal held that the taxpayer was in the newspaper business and the prize was attracted as a result of that business activity and therefore the taxpayer received the prize because of, or in relation to the business or income-producing activity. The Tribunal in this case provided that where the benefit received by a taxpayer is the product, incident, or consequence of their income-producing activities, then such receipt is assessable income according to ordinary concepts. If, however, the payment is made on personal grounds, it more likely to be a gift and does not constitute income. Application to your circumstance The Commissioner has applied the factors from ATO ID 2002/644 to your circumstance as follows:

•                     You received the awards in your capacity as an individual sole trader operating as a writer. The book that you published in operating your business activity was entered into the awards and subsequently won. •                     The Commissioner considers that literary awards are a kind of prize typical in the writing industry. The awards are therefore considered to be a common incident of your income-producing activities as an author. •                     The prize was administered voluntarily. •                     Your book was entered and proceeded to win. As the winner of a category, your book was also eligible for the overall award. Although you were not able to enter into the overall award category, there is still a degree of solicitation demonstrated by entering the book into the awards. We therefore consider that the awards were solicited. •                     The awards cannot be traced to services that you have provided to the donor. •                     You relied on the prize for living expenses. Your circumstance is similar in nature to the facts of Case V6

[1987] 88 ATC 140. In both cases, the benefit received was incidental to the income-producing activities conducted by the taxpayer. You are in the literary industry as a writer, and the awards were attracted as a result of the book you published in the course of your business activity. The awards you received are therefore because of, or in relation to your income-producing activities. In applying the principles of ordinary income to your case and the factors from ATO ID 2002/644, the Commissioner considers that the literary awards you have received represent ordinary income. The awards are therefore assessable income under section 6-5 of the ITAA 1997.