Issue
Are monies received under an agency agreement and held in a maintenance reserve by the taxpayer assessable income of the taxpayer under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).
Decision
No. The monies retained in a maintenance reserve by the taxpayer are not assessable under section 6-5 of the ITAA 1997 as income under ordinary concepts.
Facts
The taxpayer under an agency agreement operates a transport vehicle owned by a foreign resident company as the managing agent and registered proprietor in Australia.
Under the agency agreement surplus funds from the operation of the transport vehicle are retained in an account and held as a maintenance reserve by the taxpayer for the period of the agreement.
The foreign resident owner has the sole discretion to apply all or any part of the reserves to the payment of operating expenses. At the end of the agreement, the remaining reserve funds are dispersed by the owner at its sole discretion.
Reasons for Decision
In determining whether a taxpayer has derived an amount of ordinary income and when it was derived, the taxpayer is taken to have received the amount when it is applied or dealt with in any way on the taxpayer's behalf or as the taxpayer directs; section 6-5(4) ITAA 1997.
The amounts paid into maintenance accounts are not funds derived by the taxpayer but are more correctly funds derived by the foreign resident owner. They are merely retained within a maintenance reserve should there need to be a maintenance disbursement, which will be at the sole discretion of the foreign resident owner.