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1 Should the payment received from Person A be treated as assessable income under section 6-5 or section 6-10 of the Income Tax Assessment Act 1997 (ITAA1997)?

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

You received a payment on DDMMYY described by the company as a 'personal gift to you'. The gift was referenced in a letter. The letter expressed their personal intention to make it a gift. You have provided a copy of the letter dated DDMMYY. The letter sates '... my gratitude for your part in advancing what has become our vision ... that your role in the journey we have shared is recognised and appreciated.' The payment was processed through the company's payroll. Your payslip described the payment as 'XXX Gift Payment'. You have provided a copy of your employee pay details. The gift was a gross payment of $XXX,XXX. Tax of $XX,XXX was withheld from the payment. A statutory superannuation contribution of $X, XXX was made by your employer based on the gift payment. You did not provide any services or perform any duties in exchange for the gift. The gift was not part of any contractual entitlement or employment agreement. The gift was not made in recognition of any specific work performance. The timing and nature of the gift indicate it was a personal gesture.

Income Tax Assessment Act 1997 section 6-5 Income Tax Assessment Act 1997 section 6-10 Income Tax Assessment Act 1997 section 15-2

Summary The amount that you received, is assessable income in accordance with section 6-1, as it is ordinary income in accordance with section 6-5. There was no obligation on the part of employer to make the payment. The fact that it is was voluntary payment does not mean it cannot be assessable income. A gift does not form part of assessable income it is given for personal reasons unconnected to any work-related activities but if it is made in relation to work related activities the gift forms part of assessable income. There was no legal obligation on your employer to make the payment as result of Person A's letter. Based on the wording of Person A's letterthe payment was made in relation to services rendered in relation to your employment. Detailed reasoning Ordinary income Subsection 6-5(1) of the ITAA 1997 states that ' assessable income includes income according to ordinary concepts, which is called ordinary income '. Ordinary income is not defined further in legislation, but has generally been held to include three categories: income from rendering personal services, income from property and income from carrying on a business. Statutory income

Section 6-10 of the ITAA 1997 states amounts that are not ordinary income but are included in a taxpayer's assessable income by way of a specific legislative provision about assessable income are called statutory income. A summary list of statutory income provisions is contained in section 10-5 of the ITAA 1997. Specifically relevant to a taxpayer's circumstances, section 15-2 of the ITAA 1997 includes as statutory income, the value of allowances, gratuities, benefits and bonuses as assessable income provided to a taxpayer in respect of, or for or in relation directly or indirectly to the taxpayer's employment or services rendered by the taxpayer. It is important to note that subsection 15-2(3) of the ITAA 1997 provides that an amount is only assessable under section 15-2 of the ITAA 1997 if it is not assessable as ordinary income under section 6-5 of the ITAA 1997. Thus, when considering the assessability of the amount received by the taxpayer it is appropriate to consider in the first instance whether the amount is assessable as ordinary income in accordance with section 6-5.

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. TR 1999/17 Income tax: sportspeople - receipts and other benefits obtained from involvement in sport states: Explanations Ordinary income 15. Under subsection 6-5(1) of the ITAA 1997 an amount is assessable income if it is income according to ordinary concepts (ordinary income). 16. In determining whether an amount is ordinary income, the courts have established the following principles: •                     what receipts ought to be treated as income must be determined in accordance with the ordinary concepts and usages of mankind, except in so far as a statute dictates otherwise; •                     whether the payment received is income depends upon a close examination of all relevant circumstances; and •                     it is an objective test. 17. Relevant factors in determining whether an amount is ordinary income include: •                     whether the payment is the product of any employment, services rendered, or any business;

•                     the quality or character of the payment in the hands of the recipient; •                     the form of the receipt, that is, whether it is received as a lump sum or periodically; and •                     the motive of the person making the payment. Motive, however, is rarely decisive as in many cases a mixture of motives may exist ... Taxation Ruling IT 2674 Income tax: gifts to missionaries, ministers of religion and other church workers - are the gifts income? provides guidance for determining whether gifts received by church workers are assessable income. The ruling states that the principles that apply in determining whether gifts received by church workers are assessable income are no different from those which apply in determining whether gifts received by taxpayers in other callings or occupations are assessable income, but that as the practical application of the principles can differ, the ruling deals with the particular class of taxpayers. As such, the principles discussed in IT 2674 can be considered broadly for all taxpayers. IT 2674 sets out the following general principles: Legislative scheme Paragraph 26(e)

6. Broadly speaking, paragraph 26(e) of the ITAA provides that a taxpayer's assessable income includes the value to the taxpayer of all allowances, gratuities, compensations, benefits, bonuses and premiums which are allowed, given, or granted to the taxpayer in respect of, for, or in relation (directly or indirectly) to any employment of or services rendered by the taxpayer ... General principles 11. Whether a gift is assessable income depends on the quality or the character of the gift in the hands of the recipient. Consideration is necessary of the whole of the circumstances in which the gift is received. For example, the following factors need to be taken into account: (a) how, in what capacity, and for what reason the recipient received the gift; and (b) whether the gift is of a kind which is a common incident of the recipient's calling or occupation; and (c) whether the gift is made voluntarily; and (d) whether the gift is solicited; and (e) if the gift can be traced to gratitude engendered by some service rendered by the recipient to the donor, whether the recipient had already been remunerated fully for that service; and

(f)the motive of the donor (but it is seldom, if ever, decisive); and (g)whether the recipient relies on the gift for regular maintenance of himself or herself and any dependants ... When gifts are assessable income Paragraph 12 and 14 of the ruling state: 12. If a church worker receives a gift because of, in respect of, for, or in relation to any income-producing activity of the church worker, the gift is assessable income. The income-producing activity can arise from the church worker's office or occupation or some service rendered or to be rendered by the church worker. In other words, a gift (even if it is a receipt of a one-off nature) is assessable income if it is possible to: (a) relate the receipt of the gift by the church worker to any income-producing activity on his or her part; or (b) point to any employment, personal exertion or other income-producing activity by the church worker of which the receipt of the gift is in a relevant sense a product or incident ...

14. Gifts are often made to church workers both as an expression of goodwill towards them personally and also as a reward for some income-producing activity of the church worker or in recognition of the church worker's calling or occupation. If a substantial reason - it does not have to be the dominant reason - a gift is received by a church worker is his or her occupation or some income-producing activity on his or her part, the gift is income, even though the gift is also received on personal grounds ... Explanations General principles 27. The general principles stated at paragraph 11 are supported by the following decisions: a) Whether a gift is assessable income depends on the quality or character of the gift in the hands of the recipient: The Squatting Investment Co. Ltd. v. FC of T (1953) 86 CLR 570 at 627; (1953) 10 ATD 126 at 149; Scott v. FC of T (1966) 117 CLR 514 at 526; (1966) 14 ATD 286 at 293; Kelly v. FC of T 85 ATC 4238 at 4288; (1985) 16 ATR 478 at 483; (b) Consideration is necessary of the whole of the circumstances in which the gift is received: The Squatting Investment case 86 CLR at 627; 10 ATD at 146; FC of T v. Dixon

(1952) 86 CLR 540 at 555; (1952) 10 ATD 82 at 85; (c) How, in what capacity, and for what reasons the recipient received the gift are material: The Squatting Investment case 86 CLR at 628; 10 ATD at 146; (d) Whether the gift is of a kind which is a common incident of the recipient's calling or occupation is material: Scott case 117 CLR at 526; 14 ATD at 293; (e) Whether the gift is solicited is material: Hayes case 96 CLR at 54; 11 ATD at 72; Scott case 117 CLR at 526; 14 ATD at 293; (f) If the gift is traceable to gratitude engendered by some service rendered by the recipient to the donor, whether the recipient has already been remunerated fully for that service is material: The Squatting Investment case 86 CLR at 634; 10 ATD at 149; Scott case 117 CLR at 526-527; 14 ATD at 293; (g) The motive of the donor may be relevant but it is seldom, if ever, decisive: Scott case 117 CLR at 526; 14 ATD at 293; Hayes v. FC of T (1956) 96 CLR 47 at 56; (1956) 11 ATD 68 at 72; (h) Whether the recipient relies on the gift for regular maintenance of himself or herself and any dependants is material: Dixon case 86 CLR at 556-557; 10 ATD at 85; FC of T v. Blake

84 ATC 4661 at 4664; (1984) 15 ATR 1006 at 1010. Taxation Determination TD 2006/22 Income tax: is disaster relief money received from charities, to which local, state or federal government or their agencies have made payments, assessable income of taxpayers carrying on a business? TD 2006/22 considers whether voluntary payments are assessable income and explains that generally a 'gift' or a voluntary payment is not considered income unless, even though the payment was made without legal obligation, it is nevertheless so related to the recipient's employment or to services rendered that it is, in substance and reality, actually the product of an income earning activity: 5. The receipt of money or other property by way of a simple gift and nothing more is not a receipt of income. A receipt of a voluntary payment of money or a voluntary transfer of property is prima facie

not income in the hands of the recipient. If nothing more appears than the receipt of some money or property, what is received is capital and not income. On the other hand, if the facts surrounding the transaction show that the payment or transfer was made without legal obligation, but is nevertheless so related to a recipient's employment, or to services rendered, or to a business carried on, that it is, in substance and in reality, not a mere gift but the product of an income earning activity, it is regarded as assessable income of the recipient. Application to your circumstances The amount that your received, is assessable income in accordance with section 6-1 of the ITAA 1977, as it is ordinary income in accordance with section 6-5 of the ITAA 1997. In relation to the motive of the donor the motivation for the payment was in gratitude for services rendered and your personal exertion. The letter from the donor emphasises that the payment is a way to convey thanks and appreciation for your involvement in advancing a system of business.

Based on the wording of the letterthe payment was made in relation to services rendered in relation to your employment. Your employer has reiterated this view by withhold tax from the payment and treating it as assessable. Your employer has also made superannuation guarantee contributions based on assessable amount of $XXX, XXX. It is similar to an additional bonus to the bonuses/commissions that usually you receive in the course of your employment and is assessable income.