Income tax: are certain payments to a volunteer foster carer to provide foster care assessable income?

No. The payments as described in paragraph 2 of this Determination to a volunteer foster carer to provide foster care are not assessable income.

The scheme to which this Determination applies has the following features: • foster care is provided to children unable to live with their parents, on a long or short term basis, for a variety of reasons; • payments to volunteer foster carers are made to help meet the costs associated with providing care for foster children; • volunteer foster carers do not include employees of foster care agencies; • the payments are not received as part of a business of providing foster care; • the payments covered by this Determination are the standard or basic foster care subsidies plus additional loadings or allowances; and • other payments such as incentive payments and retainer fees, and all other payments for, or in the nature of payments for, the provision of services by volunteer foster carers, are not covered by this Determination.

When the final Determination is issued, it is proposed to apply both before and after its date of issue. However, the Determination will 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 Determination.

Payments to a volunteer foster carer will be assessable income if they are income according to ordinary concepts (ordinary income) under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) or statutory income [1] under paragraph 26(e) of the Income Tax Assessment Act 1936 (ITAA 1936).

In determining if an amount is income according to ordinary concepts, consideration must be given to whether the amount is the product of any income producing activity. Such an activity could include employment, the carrying on of a business or the rendering of any service ( Brown v. FC of T [2001] FCA 596; (2001) 47 ATR 178; 2001 ATC 4294).

Volunteer foster carers covered by this Determination are not employees, are not carrying on a business and are not paid any amount for their time or to reward them for any personal services they provide. The payments therefore do not have the character of income according to ordinary concepts.

In broad terms, paragraph 26(e) of the ITAA 1936 includes as statutory income allowances, gratuities, compensations, benefits, bonuses and premiums provided in respect of, or for or in relation directly or indirectly to, employment or services rendered by a person.

The payments to volunteer foster carers covered by this Determination are made in order to help meet the expenses associated with caring for foster children, not as a reward or recompense for any employment or rendering of services by the carer. As such, the payments do not have a sufficiently proximate connection with any employment or services rendered to be considered to be a product or consequence of such activities. Accordingly, the payments cannot be said to have been provided in respect of, or for or in relation to, such activities and are not assessable under paragraph 26(e) of the ITAA 1936 ( Smith v. FC of T (1987) 19 ATR 274; 87 ATC 4883).

We invite you to comment on this draft Taxation Determination. Please forward your comments to the contact officer by the due date. (Note: The Tax Office prepares a compendium of comments for the consideration of the relevant Rulings Panel. The Tax Office may use a sanitised version (names and identifying information removed) of the compendium in providing its responses to persons providing comments. Please advise if you do not want your comments included in a sanitised compendium.) Due date: 21 July 2006 Contact officer details have been removed following publication of the final ruling.