General Practitioner (GP) Links Amalgamation Incentive Payments: whether a subsidy

Are 'GP Links' Amalgamation Incentive payments received by the taxpayer, a medical practitioner, assessable as a subsidy under section 15-10 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 a subsidy under section 15-10 of the ITAA 1997 as they were not received in relation to carrying on a business.

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 payment transaction 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.

In accordance with section 15-10 of the ITAA 1997, a bounty or subsidy is included in the assessable income of the recipient if it is received in relation to the carrying on of a business and is not assessable as ordinary income under section 6-5 of the ITAA 1997.

Given the decisions in Squatting Investments Co Ltd v. Federal Commissioner of Taxation (1953) 86 CLR 570; (1953) 10 ATD 126; (1953) 5 AITR 496 Reckitt and Colman Pty Ltd v. FC of T (1974) 74 ATC 4185; (1974) 4 ATR 501 and in First Provincial Building Society Ltd v. Commissioner of Taxation (1995) 56 FCR 320; 95 ATC 4145; (1995) 30 ATR 207 ( First Provincial Case ) it is now well accepted that a 'subsidy' includes a financial grant made by the government.

The 'GP Links' incentive payments were made to the taxpayer by the Federal Government to assist the taxpayer to restructure their existing medical practice in order to provide a better service to the public. Therefore, the payment is a subsidy within the meaning of section 15-10 of the ITAA 1997.

In looking at the meaning of the phrase ' in relation to the carrying on of a business' Hill J stated in the First Provincial Case that ...the relationship must be to the "carrying on" of the business. These words may perhaps be understood in opposition to a relationship with the actual business itself. They would make it clear, for example, that a bounty received, merely in relation to the commencement of a business or the cessation of the business, would not be caught. The expression "carrying on of the business" looks, in my opinion, to the activities of that business which are directed towards the gaining or producing of assessable income, rather than merely to the business itself.

Therefore it is not sufficient that the payment be received in relation to the business it must be in relation to the 'carrying on' of that business.

The 'GP Links' incentive payments were made to the taxpayer to assist the taxpayer to examine the potential benefits of amalgamation and to offset costs related to establishing an amalgamated practice.

A medical practice that amalgamates with one or more other practices to form a new amalgamated entity is not carrying on the same business. Rather, it ceases its previous business and commences a new business as part of a larger entity. Therefore, any payment received in relation to the amalgamation is not a receipt related to the carrying on of the business, but rather to the cessation of one business and the commencement of another. In view of this, the GP Links payments are not included in the taxpayer's assessable income under section 15-10 of the ITAA 1997 as they are not received in relation to the carrying on of a business.