Income tax: assessable income: indoor soccer referees: Salvo's United Football Club receipts

This Ruling sets out the Commissioner's opinion on the way in which the 'tax law(s)' identified below apply to the defined class of persons, who take part in the arrangement to which this Ruling relates.

The tax laws dealt with in this Ruling are sections 6-5, 6-10 and 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) and paragraph 26(e) of the Income Tax Assessment Act 1936 (ITAA 1936).

The class of persons to which this Ruling applies is indoor soccer referees who receive payments for refereeing matches for the Salvo's United Football Club (SUFC).

The Commissioner makes this Ruling based on the precise arrangement identified in this Ruling.

The class of persons defined in this Ruling may rely on its contents provided the arrangement actually carried out is carried out in accordance with the arrangement described in paragraphs 9 to 17.

If the arrangement actually carried out is materially different from the arrangement that is described in this Ruling, then: • this Ruling has no binding effect on the Commissioner because the arrangement entered into is not the arrangement on which the Commissioner has ruled; and • this Ruling may be withdrawn or modified.

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This Ruling applies from 1 October 2004. However, this Ruling does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Ruling (see paragraphs 21 to 22 of Taxation Ruling TR 92/20). Furthermore, the Ruling only applies to the extent that: • it is not later withdrawn by notice in the Gazette ; • it is not taken to be withdrawn by an inconsistent later public ruling; or • the relevant tax laws are not amended.

The arrangement that is the subject of the Ruling is described below. This description is based on the following documents and telephone records which are attached to the file record maintained by the Tax Office for this ruling. These documents, or relevant parts of them, as the case may be, form part of and are to be read with this description. The relevant documents or part of documents incorporated into this description of the arrangement are: • Application for Class Ruling (dated 24 November 2004) received by facsimile on 24 November 2004; and • information provided in telephone conversations on 8 December 2004 and on 3 March 2005.

There are ten (10) teams in the competition run by the SUFC and matches are played on a Tuesday evening of each week for the duration of the competition.

The competition lasts for eighteen (18) weeks followed by semi finals and a final.

All matches are played at the Salvation Army church premises at Stafford in Queensland.

Referees are paid $10 per match. Referees are paid in cash after the match has concluded. No allowances are paid.

Typically a referee would control one or two matches per Tuesday evening. The maximum number of matches a referee could control in one evening would be three (3) matches. In a full competition approximately ten (10) referees may be used.

Current fees are such that no referee would receive more than $1,000 per season.

The referees are members of the Queensland Baptist Soccer Association. There is no formal selection process to appoint referees to particular matches and appointment is based largely on availability on the night.

The match fees are not intended to, nor do they usually cover expenses. The purpose of the payment is to encourage members of the community to participate in local sporting activities by subsidising the costs associated with participation. Refereeing also provides the opportunity to be involved in the game, achieve a greater fitness level and to meet friends on a regular basis.

The match fees paid to referees who officiate at matches for the SUFC are not assessable income under either section 6-5 or section 6-10 of the ITAA 1997.

Losses and outgoings incurred deriving the match fees, cannot be claimed as a deduction under section 8-1 of the ITAA 1997 or any other provision of the ITAA 1997.

A payment or other benefit received by a taxpayer is assessable income if it is: • income in the ordinary sense of the word ( ordinary income ); or • an amount or benefit that through the operation of the provisions of the tax law is included in assessable income ( statutory income ).

Under subsection 6-5(1) of the ITAA 1997 an amount is assessable income if it is income according to ordinary concepts (ordinary income).

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 • whether the payment received is income is an objective test.

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.

Furthermore, where a taxpayer's activities constitute a pastime or hobby rather than an income-producing activity, money and other benefits received from the pursuit of that pastime or hobby are not assessable income, nor are the expenses allowable deductions.

Participation in activities generating pastime or hobby receipts is a social or personal pursuit of a non-commercial nature. Pastime receipts are not intended to, nor do they usually, cover expenses. Even regular receipts obtained from a pastime or hobby are still characterised as receipts from a pastime or hobby and accordingly are not assessable income. A receipt that is an incident of a pastime or hobby would also not be assessable, even if it arises from the provision of a service. However, the nature of such a receipt or receipts is relevant in determining whether the pastime has become a business. The receipt or receipts could indicate, for example: a commercial activity; an intention to make a profit from the activity; or an increase in either the size and scale of the activity or the degree of repetition or regularity of the activity.

The sporting activities of referees appointed to control SUFC matches are considered to constitute a pastime or hobby and therefore, the match fees received from the pursuit of that pastime or hobby are not assessable income.

The match fees are not intended to, nor do they usually, cover expenses. The purpose of the payment is to encourage members of the community to participate in local sporting activities by subsidising the costs associated with that participation.

In forming the opinion that referees who comprise the class of persons to whom this Ruling applies are engaged in a pastime or hobby, we have taken into account the number of games at which they officiate, the seniority of the competition and the links with the community, particularly the social benefits of participation and the quantum of the fees that they can receive.

Section 6-10 of the ITAA 1997 includes in assessable income amounts that are not ordinary income; these amounts are statutory income. A list of the statutory income provisions can be found in section 10-5 of the ITAA 1997. That list includes a reference to paragraph 26(e) of the ITAA 1936.

Paragraph 26(e) of the ITAA 1936, provides that assessable income shall include ... the value to the taxpayer of all allowances, gratuities, compensations, benefits, bonuses and premiums allowed, given or granted to him in respect of, or for or in relation directly or indirectly to, any employment of or services rendered ...

The main issue to consider with respect to paragraph 26(e) of the ITAA 1936 is whether the payment is '... given or granted to him in respect of ... any employment of or services rendered ...'. Whilst the referees are not considered 'employees', paragraph 26(e) of the ITAA 1936 also includes in assessable income those allowances etc. which are paid in respect of 'services rendered'.

The match fees of referees are considered to be 'receipts incidental to a pastime' (refer paragraphs 24 to 25). As such, the match fees are not assessable under paragraph 26(e) of the ITAA 1936 because the referees are not considered to be employees, nor are they 'rendering services'.

As the match fees received by the referees are not assessable income, all losses and outgoings that are incurred in respect of receiving those amounts are not allowed as a deduction under section 8-1 of the ITAA 1997 or any other provision of the ITAA 1997.

Where referees also officiate in competitions other than for the SUFC those referees' activities may cease to be that of a hobby or pastime. A more detailed analysis of the circumstances of those referees may be required. Referees in this situation should discuss their circumstances with their taxation adviser or the Tax Office.

As explained above, match payments paid to a referee who is engaged in a hobby or pastime are not assessable income. The payments are not regarded as withholding payments under Division 12 in Schedule 1 to the Taxation Administration Act 1953 . An entity making match payments to referees who are in the class of persons to which this Ruling applies will not be required to withhold amounts from these payments nor would they have any other associated PAYG withholding obligations - for example, obtaining Tax File Number declarations, payment summaries, annual reporting.

Below is a detailed contents list for this Class Ruling: Paragraph What this Class Ruling is about 1 Tax law(s) 2 Class of persons 3 Qualifications 4 Date of effect 8 Arrangement 9 Ruling 18 Explanation 20 Ordinary income 21 Statutory income 29 General deductions 33 Referees who officiate in other leagues 34 Pay As You Go (PAYG) withholding 35 Detailed contents list 36