Income tax: assessable income: football umpires: Southern Football League Limited receipts

This Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates.

The relevant provisions dealt with in this Ruling are: • section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997); • section 6-10 of the ITAA 1997; • section 8-1 of the ITAA 1997; and • paragraph 26(e) of the Income Tax Assessment Act 1936 (ITAA 1936).

The class of entities to which this Ruling applies is Australian Rules Football umpires who receive payments for umpiring matches for the Southern Football League (SFL) in the south eastern suburbs of metropolitan Melbourne. In this Ruling these entities are referred to as 'umpires'.

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

The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 12 to 26 of this Ruling.

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because the scheme entered into is not the scheme on which the Commissioner has ruled; and • this Ruling may be withdrawn or modified.

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This Ruling applies from 1 July 2005. However, the 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. Furthermore, the Ruling only applies to the extent that: • it is not later withdrawn by notice in the Gazette ; or • the relevant taxation provisions are not amended.

If this Class Ruling is inconsistent with a later public or private ruling, the relevant class of entities may rely on either ruling which applies to them (item 1 of subsection 357-75(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA)).

If this Class Ruling is inconsistent with an earlier private ruling, the private ruling is taken not to have been made if, when the Class Ruling is made, the following two conditions are met: • the income year or other period to which the rulings relate has not begun; and • the scheme to which the rulings relate has not begun to be carried out.

If the above two conditions do not apply, the relevant class of entities may rely on either ruling which applies to them (item 3 of subsection 357-75(1) of Schedule 1 to the TAA).

The scheme 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 scheme are: • application for Class Ruling dated 18 May 2006; • information provided in telephone conversations with the applicant; and • information provided by email dated 11 July 2006.

The SFL administers and co-ordinates the sport of Australian Rules Football in the south eastern suburbs of metropolitan Melbourne. This co-ordination and administration extends to the provision of umpires for the official matches of the SFL.

The SFL sends invoices to its member clubs for umpires who have been appointed to their matches.

The SFL retains a percentage of the fees for administration charges and Workcover insurance which covers for loss of income in the event of injury to umpires. The balance is paid to the umpires as match fees via electronic funds transfer into their nominated financial institution 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 the umpire officiates. Current fees are such that the expected upper limit of amounts any umpire would receive in a season is between $2,000 and $2,500.

The individual match fee currently paid to a Senior Umpire in a Senior Match is $98.40. All fees paid to other umpires, including Boundary Umpires and Goal Umpires in lesser grades, are less than that amount.

Umpires do not receive any allowances and benefits other than their match payments.

The umpires are members of the Southern Football League Umpires Association (SFLUA), membership being compulsory.

A membership fee is deducted by the SFL from umpires match fees. The total amount of membership fees so deducted is remitted directly to the SFLUA.

Umpires are appointed to matches by the SFL and no member club has influence over the appointments.

All appointments are based on merit and development considerations.

Umpires may officiate at more than one match per week, although this is avoided where possible. It is unlikely that an umpire would officiate at more than 25 matches in a season.

Umpires are required to incur expenditure for match uniforms and training gear, including shoes, socks, shorts, shirts, wrist bands and whistles. Goal Umpires incur expenses on trousers, polo tops, coats, hats/caps, flags and flag sticks.

The umpires meet their own costs of travel to grounds.

The match fees are not intended to, nor do they usually cover expenses incurred by the umpires. 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 SFL are not assessable income under either section 6-5 or section 6-10 of the ITAA 1997.

Losses and outgoings incurred by umpires in connection with their umpiring activities 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.

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 associated expenses allowable deductions.

Participation in activities generating pastime or hobby receipts is a social or personal pursuit of a non-commercial nature. Pastime or hobby 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 SFL 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 stated 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 entities to whom this Ruling applies are engaged in a pastime or hobby, we have taken into account the number of matches at which they officiate, the seniority of the football league, 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 references to paragraph 26(e) 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 ...

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 to paragraphs 35 to 37 of this Ruling). 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 the fees received in respect of 'services rendered'.

As the match fees received by the umpires are not assessable income, all losses and outgoings that are incurred in connection with their umpiring activities are not allowed as a deduction under section 8-1 of the ITAA 1997 or any other provision of the ITAA 1997.

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 TAA. An entity making match payments to umpires who are in the class of entities 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, providing payment summaries or annual reporting.

The following is a detailed contents list for this Ruling: Paragraph What this Ruling is about 1 Relevant provision(s) 2 Class of entities 3 Qualifications 4 Date of effect 8 Scheme 12 Ruling 27 Appendix 1 - Explanation 29 Ordinary income 30 Statutory income 38 General deductions 42 Pay As You Go (PAYG) withholding 43 Appendix 2 - Detailed contents list 44