Income tax: assessable income: football umpires: Southern Umpires Association Inc. 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 paragraphs 26(e) and 26(eaa) of the Income Tax Assessment Act 1936 (ITAA 1936).

The class of persons to which this Ruling applies is Australian Rules football umpires who receive payments for umpiring matches for the Southern Umpires Association Inc. (SUA). SUA provides umpires to Australian Rules football leagues located in the south-eastern suburbs of the Melbourne metropolitan area, also classed as the Mornington Peninsula area.

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 24.

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the arrangement entered into is not the arrangement on which the Commissioner has ruled; and • this Ruling may be withdrawn or modified.

This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to: Commonwealth Copyright Administration Intellectual Property Branch Department of Communications, Information Technology and the Arts GPO Box 2154 Canberra ACT 2601 or by e-mail: commonwealth.copyright@dcita.gov.au

This Ruling applies from 1 July 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 Furthermore, the Ruling only applies to the extent that: • it is not later withdrawn by notice in the Gazette; • it is not taken to be withdrawn by an inconsistent later public ruling; or • the relevant tax laws are not amended.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 16 November 2004) received 18 November 2004; • information provided in a facsimile sent by the applicant (dated 13 December 2004) received 13 December 2004; and • information provided in a facsimile sent by the applicant (dated 15 December 2004) received 15 December 2004.

The SUA was set up to administer and co-ordinate the sport of Australian Rules football in the south-eastern suburbs of the Melbourne metropolitan area. This co-ordination and administration extends to the provision of umpires for the official matches of various leagues.

The SUA sends invoices to the various leagues for umpires that have been appointed to their matches.

The SUA retains a percentage of the fees charged to cover administration expenses and Workcover insurance, which covers loss of occupational income in the event of injury, but not loss of match payments and other expenses incurred by the SUA. The balance is paid to the umpires as match fees via electronic funds transfer into their nominated financial institution, normally on a monthly basis.

Umpires are paid a match fee for each game they umpire and amounts received in a season depend on the level and number of games at which an umpire officiates. Current fees are such that the expected upper limit of amounts any umpire would receive in a season is between $2,500 and $3,000.

All fees paid to other umpires, including Boundary umpires and Goal umpires in lesser competitions, are less than the amounts referred to in paragraph 13.

Umpires do not receive any allowances and benefits other than their match fees (refer paragraph 13) and travel allowance (refer paragraph 16). No allowances are received by the umpires for tribunal attendance or training.

The travel allowance, which currently ranges from $10 to $30 per game, is dependent upon which football grounds the umpires are required to officiate at and the distance they are required to travel to those grounds. The travel allowance for each ground is calculated on a per kilometre basis (currently 41 cents per kilometre but will be increased to 46 cents for season 2005) from the SUA Headquarters in Seaford to the respective ground. An umpire will only be paid a travel allowance if they are nominated to transport other umpires to and from the ground.

The umpires are members of the SUA.

To obtain membership of the SUA an umpire has to complete an application form.

No membership fee is payable to the SUA by the umpires but a $30 social levy is required by second year umpires and above. This covers their Presentation Night Formal Dinner where awards are given out. This is not a compulsory event but most umpires attend. If the levy is not used for this occasion the umpires are free to use it at any social event held by the SUA during the year.

Umpires are in all cases, appointed to matches by the SUA and no club or League has any influence over which umpires are appointed to which games.

All appointments are based on merit, whereby the most experienced and capable umpires are appointed to the more senior or important games. All umpires appointed to games are assessed for their ability and further appointments are governed by their capabilities.

Umpires may officiate at more than one match per week although this is avoided where possible. It is highly unlikely that an umpire would officiate at more than thirty matches in a season.

All SUA members incur expenditure for match uniforms and training gear including shoes, whistles, wrist bands, socks, shorts and shirts. Goal umpires incur expenditure on trousers, coats, ties, hats/caps, flags and flag sticks. As well as uniforms for matches, there are other requirements such as shirts, trousers, shoes, jackets and polo shirts being the required dress code for umpires to attend matches.

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. Individual umpires contend that the primary motivation for umpiring is a love of Australian Rules football and a desire to contribute to the community in which the game is played. Umpiring 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 umpires who officiate at matches for the SUA 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 umpires appointed to umpire SUA 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 umpires 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 football leagues and the links with the community, particularly the social benefits of participation and the quantum of the fees that they can receive.

In addition, the 'travel allowance' does not constitute 'ordinary income' as it is considered a reimbursement of an umpire's expenditure in regard to a private or personal pursuit.

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 references to paragraphs 26(e) and 26(eaa) of the ITAA 1936.

Paragraph 26(e) of the ITAA 1936, provides that the 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 ...'.

Paragraph 26(eaa) of the ITAA 1936, provides that the assessable income shall include ' ... a benefit that, but for section 22 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986), would be an expense of that Act - the amount of the reimbursement referred it in that section ...'.

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 umpires 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 umpires are considered to be 'receipts incidental to a pastime' (refer paragraphs 33 to 35). As such, the match fees are not assessable under paragraph 26(e) of the ITAA 1936 because the umpires are not considered to be employees, nor are they 'rendering services'.

Both paragraphs 26(e) and 26(eaa) of the ITAA 1936 include certain allowances, benefits and reimbursements in assessable income, where those allowances or reimbursements are given or granted in relation, directly or indirectly, to any employment or services rendered.

Paragraph 26(eaa) of the ITAA 1936 specifically includes car expense reimbursements that would be expense payment fringe benefits under the FBTAA 1986 but for the exemption contained in section 22 of that Act. The 'allowance' received by the umpires does not constitute an 'expense payment benefit' under section 20 of the FBTAA 1986 as there is no employer/employee relationship, the prerequisite that characterises a fringe benefit.

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 umpires 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'.

Given the match fees of umpires are considered to be 'receipts incidental to a pastime' (refer paragraph 33 to 35), the related 'travel allowance' is not assessable under paragraph 26(e) of the ITAA 1936 because the umpires are not considered to be employees, nor are they 'rendering services'.

As the match fees received by the umpires 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 umpires also officiate in competitions other than for the SUA, those umpires' activities may cease to be that of a hobby or pastime. A more detailed analysis of the circumstances of those umpires may be required. Umpires in this situation should discuss their circumstances with their taxation adviser or the Tax Office.

As explained above, match payments paid to an umpire 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 umpires 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 Product Ruling is about 1 Tax law(s) 2 Class of persons 3 Qualifications 4 Date of effect 8 Arrangement 9 Ruling 25 Explanation 27 Ordinary income 28 Match fees 33 Travel allowance 36 Statutory income 37 Match fees 40 Travel allowance 42 General deductions 46 Umpires who officiate in other leagues 47 Pay As You Go (PAYG) withholding 48 Detailed contents list 49