Are the cash prize amounts you received in relation to an overseas investment lottery assessable under section 6-10 of the Income Tax Assessment Act 1997 ?
Yes. This ruling applies for the following period: Year ended 30 June 20XX The scheme commenced on: 1 July 20XX
You are an Australian resident for taxation purposes. You are a citizen of Country X but are not a resident of Country X for taxation purposes. You participated in an investment product (the Units) offered by a financial organisation (Organisation A) in Country X. You did not receive interest or dividends in relation to the Units, but each unit you held was included in the regular prize draws held by Organisation A during the year providing you with the chance to win cash prizes. The cash prizes that can be won are within a specified range of amounts, that are tax free in Country X. During the ruling period you won cash prizes (the cash prize amounts) in relation to the Units from the regular prize draws operated by Organisation X. The cash prize amounts were originally paid into a bank account due to you having the maximum unit holding amount in your account. You withdrew an amount from your unit holding account after which the cash prize amounts were paid into your unit holding account.
Income Tax Assessment Act 1936 section 26AJ Income Tax Assessment Act 1997 section 6-5 Income Tax Assessment Act 1997 section 6-10
Assessable income The assessable income of an Australian resident includes ordinary income and statutory income from all sources, whether inside or outside of Australia. Ordinary income is income according to ordinary concepts under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), such as the amounts are received regularly and are relied upon. 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 provides a summary list of the provisions for statutory income, which includes section 26AJ of the Income Tax Assessment Act 1936 (ITAA 1936) that considers the taxation treatment of prizes from investment-related lotteries, such as cash prizes. Generally, winnings from gambling or lotteries are not treated as assessable income. However, the effect of subsection 26AJ(1) of the ITAA 1936 is that where an amount is paid to a taxpayer and: • the payment is by way of winnings from betting, lottery or another form of gambling or game with prizes
• the chance to participate in, for example the lottery, was provided wholly or partly in respect of an investment held by the taxpayer in or with an investment body; and • the lottery or game was organised by the investment body, • then the amount received by the taxpayer is included in their assessable income. Investment is defined to mean any mode of application of money for the purpose of gaining a return. Section 26AJ(1)(a) of the ITAA 1936 categorises the winnings that might arise from an investment-related lottery into three classes of prizes, being loan benefits, cash, and other property or services. If the prize takes the form of an amount (other than a loan) paid or credited to the taxpayer, or to another person, during a year of income, such as cash prizes, then that amount so paid or credited is included in the taxpayer's assessable income for that year of income, under paragraph s 26AJ(2)(i)) of the ITAA 1936. Application to your situation You are an Australian resident for taxation purposes, and your assessable income includes your statutory income from all sources, whether in or out of Australia.
You invested in the Units for the purpose of gaining a reward, albeit the subject of chance, and on that basis the Units come within the definition of investment. Based on the information provided, the cash prize amounts you received in relation to the Units meet the requirements of subsection 26AJ(1) of the ITAA 1936. That is, you held an investment product issued by Organisation A, an investment organisation, in relation to which you won the cash prize amounts from the prize draws organised by Organisation A. Therefore, the cash prize amounts you received in relation to the Units are statutory income under section 6-10 of the ITAA 1997. Accordingly, those cash prize amounts must be included in your income tax return in the income year in which you received the cash prize amounts.