ATO Interpretative Decision

ATO ID 2002/822

Income Tax

Issue

Is a payment that was offered to the taxpayer as an incentive to participate in a market research session, assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. A payment that was offered to the taxpayer as an incentive to participate in a market research session is assessable income under subsection 6-5(2) of the ITAA 1997.

Facts

The taxpayer was recruited to participate in a market research session. This essentially involved the taxpayer giving their views and suggestions on various products under development which were shown to the taxpayer during the session.

The taxpayer was told at the time they were approached to participate in the market research session that they would be paid for their attendance.

The organisation that was conducting the market research intended that the offer of payment act as an incentive for the taxpayer to participate in the market research session. The payment was conditional on the taxpayer attending the session.

The taxpayer has attended only one market research session.

The taxpayer was subsequently paid for their attendance at the session.

Reasons for Decision

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

In determining whether an amount is ordinary income, the courts have established the following principles:

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what receipts ought to be treated as income must be determined in accordance with ordinary concepts and usages of mankind, except in so far as a statute dictates otherwise

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whether the payment received is income depends upon a close examination of all relevant circumstances; and

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whether the payment received is income is an objective test.

Relevant factors in determining whether a payment is ordinary income include:

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whether the payment is the product of any employment, services rendered, or any business

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whether the payment is expected and relied upon

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the character of the payment in the hands of the recipient

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whether the payment is received as a lump sum or periodically; and

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the motive of the person making the payment, although this is rarely decisive by itself.

Taxation Ruling IT 2639, at paragraph 3, defines 'income from personal services' as 'income that an individual taxpayer earns predominantly as a direct reward for his or her personal efforts by, for example, the provision of services, exercise of skills or the application of labour.'

The payment to a taxpayer for services rendered is assessable income, even though the taxpayer does not provide those services as an employee or in carrying on a business (Brent v. Federal Commissioner of Taxation (1971) 125 CLR 418; 71 ATC 4195; (1971) 2 ATR 563).

The courts have held that a voluntary payment or gift is generally ordinary income in the hands of the recipient where the receipt is the product of services rendered by the recipient (FC of T v. Harris (1979) 37 FLR 325; 79 ATC 4383; (1979) 10 ATR 84).

Although the taxpayer might attend only one session and hence receive just the one payment, the absence of regularity of payment in this instance does not indicate that the payment is not ordinary income. The predominant character of the payment is of remuneration for the taxpayer's services. Further, the taxpayer has an expectation that they will be paid for those services.

Although not decisive, the fact that the consultant intended the payment as an incentive for the taxpayer to participate in the consultant's market research sessions is indicative that the payment is properly characterised as ordinary income in the hands of the taxpayer.

The payment to the taxpayer was made in return for the services that they provided by participating in the market research. The payment falls within the meaning of income from personal services. The income received will therefore be included in the taxpayer's assessable income under subsection 6-5(2) of the ITAA 1997.

Year of income:  30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   subsection 6-5(2)

Case References:
Brent v. Federal Commissioner of Taxation
   (1971) 125 CLR 418
   71 ATC 4195
   (1971) 2 ATR 563

Related Public Rulings (including Determinations)
Taxation Ruling IT 2639
Taxation Ruling TR 92/15

Keywords
Assessable income
Producing assessable income
Personal services
Ordinary income
Gifts

Siebel/TDMS Reference Number:  CRS78188

Business Line:  Public Groups and International

Date of publication:  21 August 2002

ISSN: 1445-2782