1 Is the amount you received as the recipient of the award in the 20XX-XX income year assessable income?
1 Yes. This ruling applies for the following period: Year ended 30 June 20XX The scheme commenced on: 1 July 20XX
You are currently employed with Employer Z. You have held multiple positions with Employer Z. The duties of all the positions included undertaking research. You personally applied for the award. The award is only open to staff of Employer Z. The award is to recognise excellence in research impact. Employer Z states that the award is part of their recognition and reward system. All the research publications you submitted as evidence of the research that was the subject of your application, were published while you were employed by Employer Z. All of the articles were on topics that Employer Z states that it has undertaken research projects on. Employer Z treated the prize money as a taxable payment on your payslip and withheld tax.
Income Tax Assessment Act 1997 section 6-5 Income Tax Assessment Act 1997 section 6-10 Income Tax Assessment Act 1997 section 15-2
Assessable income includes both ordinary income and statutory income. Ordinary income - section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) Section 6-5(1) of the ITAA 1997 states that your assessable income includes income according to ordinary concepts. The ITAA 1997 provides no guidance on what is meant by ordinary income and so reliance is placed on case law. Generally, a gift or prize is regarded as a personal windfall gain and not as ordinary income, unless the taxpayer has received the prize or gift because of, in respect of, or in relation to any income producing activity of the taxpayer. In determining whether a prize or gift is ordinary income, the courts have established that consideration of the whole of the circumstances is necessary and that the following factors need to be taken into account: • how, in what capacity, and for what reason the recipient received the prize or gift ( Squatting Investment Co Ltd v. Federal Commissioner of Taxation (1953) 86 CLR 570, (1953) 5 AITR 496; (1953) 10 ATD 126 ( Squatting Investment Case )
• whether the prize or gift is of a kind which is a common incident of the recipient's calling or occupation ( Scott v. Federal Commissioner of Taxation (1966) 117 CLR 514; (1966) 10 AITR 367; (1966) 14 ATD 286 ( Scott's Case ) • whether the prize or gift is made voluntarily • whether the prize or gift is solicited ( Hayes v. Federal Commissioner of Taxation (1956) 96 CLR 47; (1956) 6 AITR 248; (1956) 11 ATD 68 ( Hayes' Case ) and Scott's Case ) • whether the prize or gift can be traced to personal gratitude engendered by some service rendered by the recipient to the prize or gift donor ( Squatting Investment Case ) • the motive of the prize or gift donor (though this factor is rarely decisive in itself) ( Hayes' Case ), and • whether the recipient relies on the prize or gift for regular maintenance of themselves and any dependants ( Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540; (1952) 5 AITR 443; (1952) 10 ATD 82 ( Dixon's Case ) and FC of T v. Blake 84 ATC 4661; (1984) 15 ATR 1006).
Although you contend that much of the work recognised occurred before your employment with Employer Z, the documentation provided indicates that a significant amount of your prize winning research was undertaken during the course of your employment as a researcher. We acknowledge that you referred to your initial role with Employer Z as an administrative position. However, the Position Description document states that research is a key responsibility of the position so the role involved research in addition to administration. Also, the articles that contained your research which were the subject of the award were published in 20XX and 20XX, at which time you had been undertaking research as part of your employment with Employer Z for a number of years. We also note that the university documentation provided states that Employer Z's research projects include projects on topics which were the subjects of your research for which you submitted your application for the award. You applied for the award yourself and nominations for the award were exclusively for staff of Employer Z. The prize was paid by your employer, Employer Z. In the case of Kelly v. FC of T
85 ATC 4283; (1985) 16 ATR 478 a footballer's cash prize for being the best and fairest player was determined to be a normal incidence of that employment. Like the footballer, your award was for work performed during the course of your employment and as such may be considered to be a normal incidence of your employment. Furthermore the football cash prize was not paid by the employer, whereas here the prize was paid by your employer. The employer is under no contractual obligation to issue any prizes. However, it may be the case that each employee nonetheless relies on, or has an expectation that they may win the prize as part of their work. This is because the award is an established yearly prize provided by your employer. The prize cannot be traced to personal gratitude engendered by your research performed, given that the prize is open to all of your employer's staff, the recipient is chosen by a committee and employees can nominate themselves. This can be contrasted with Scott's Case where it was held that an unsolicited gift a solicitor received from a client was a result of a personal rather than professional relationship.
In relation to the motive of the donor, in the award guidelines, Employer Z states that the award is part of its recognition and reward system. The award is offered to encourage employees which will in turn benefit the employer. In this way it is similar to a bonus (despite its classification as a 'prize') which is ordinary income. Upon weighing up all the relevant factors it can be seen that the prize is assessable ordinary income. In particular: • the award is only available to Employer Z staff • a significant amount of the award winning research was performed in the course of your employment with Employer Z • Employer Z documentation provided states that Employer Z's current or recent research projects include projects on topics which were the subject of your research for which you submitted your application for the award • the award was paid by your employer • your employer considers the award part of its recognition and reward system, and • you personally applied for the award. You referred to ATO Interpretative Decision ATO ID 2002/644
Income Tax: Assessability of Prize in your application to support your submission that the prize money you received was not assessable income. However, the facts in this ATO ID can be distinguished from your circumstances as the prize in the ATO ID could not be self-nominated for and it was not paid by the recipient's employer whereas in your circumstances, you nominated yourself and the prize was paid by your employer. Therefore ATO ID 2002/644 does not support your argument that the prize money is not assessable. Statutory income - section 6-10 of the ITAA 1997 Section 6-10 of the ITAA 1997 provides that a taxpayer's assessable income includes statutory income amounts that are not ordinary income but are included in assessable income by another provision. Section 10-5 of the ITAA 1997 lists those provisions. Included in this list and of relevance to this matter is section 15-2 of the ITAA 1997. Section 15-2 of the ITAA 1997 provides that the value to the taxpayer of all gratuities and benefits given or granted to them in respect of, or for or in relation directly or indirectly to any employment of or services rendered shall be included in their assessable income.
Prior to 14 September 2006, the former paragraph 26(e) of the Income Assessment Act 1936 (ITAA 1936) applied in the same manner as section 15-2 of the ITAA 1997. In this case the prize is only available to Employer Z staff and the payment comes directly from your employer, Employer Z. The leading cases in connection with this question of an indirect or direct relation to employment are Dixon's Case and Scott's Case . In both cases it was decided that the phrase 'an indirect consequence of employment' was not an open ended concept. Rather, there must be a connection between the payment and the employment such that the receipt 'is in a relevant sense a product' of the employment. In FC of T v. Holmes 95 ATC 4476; (1995) 31 ATR 71 ( Holmes' Case
), the Full Federal Court found a payment to be income under section 26(e) of the ITAA 1936. In that case the taxpayer was a member of a tugboat crew and received his usual salary. As a result of his crew salvaging a vessel an additional payment of $23,381 accrued to the taxpayer. The entitlement to this payment was dependent on a successful salvage and arose out of an agreement between the head contractors and Lloyd's of London (not the taxpayer's employer). Although the obligation to make the payment to the taxpayer was contingent on a successful salvage operation, there was still a real connection between the payment received by the taxpayer and the services rendered by him in the course of the salvage operation. The Administrative Appeals Tribunal originally held that because the payments were contingent on a successful salvage, the link between the taxpayer's services rendered and the ultimate payment received was severed.
On appeal, the Full Federal Court found that there was a real connection between the payment received and the services rendered. The fact that the obligation to make the payment to the taxpayer arose only in the event that the salvage operation was successful did not break or sever the connection between the payment and the rendering of services. Accordingly, the payment fell within section 26(e) of the ITAA 1936. In your case, upon applying for the award, the prize was contingent on the panel of judges selecting your application for the prize. There appears to be an even stronger connection between your employment and the ultimate receipt of the prize than there was in Holmes' Case
, which had a sufficient connection itself, as the prize was paid directly by your employer. Also taking into account that the prize was only open to your employer's staff, it is part of their recognition and reward system and a significant amount of the research for which it was awarded was undertaken as part of your employment, we consider that its receipt is a product of your employment. Consequently, the prize will be assessable as statutory income under section 15-2 of the ITAA 1997 if it is not assessable as ordinary income under section 6-5 of the ITAA 1997.