TR 2019/1 – Income Tax: When is a Amount Included in Assessable Income Under Section 6-5?

Executive Summary

TR 2019/1 provides the ATO's comprehensive view on when an amount is ordinary income and therefore included in assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). It consolidates and replaces earlier rulings on ordinary income concepts, providing a single authoritative reference for practitioners.

What This Ruling Addresses

This ruling addresses the fundamental question of what constitutes 'ordinary income' for Australian tax purposes. It covers the characterisation of receipts as income according to ordinary concepts, the timing of derivation, and the distinction between income and capital. The ruling is relevant to all taxpayers who receive amounts that may be characterised as ordinary income.

Legislative Framework

The primary legislative basis is section 6-5 of the ITAA 1997, which includes in assessable income amounts that are 'income according to ordinary concepts'. The ruling also references section 6-10 (statutory income), section 15-2 (allowances and other payments), and the general anti-avoidance provisions in Part IVA of the ITAA 1936.

Detailed Explanation

The ruling establishes that ordinary income has three key characteristics: (1) it must have a quality of periodicity, regularity, or recurrence; (2) it must be the product of property, employment, a business, or a revenue-generating activity; and (3) it must be received in the form of money or money's worth.

The ATO's position is that the ordinary meaning of income is informed by judicial decisions and must be determined by reference to all relevant circumstances. Income according to ordinary concepts is a question of characterisation rather than a mechanical test.

The ruling provides detailed guidance on various categories including employment income, business income, investment income, windfall gains, and voluntary payments. It explains that the character of a receipt in the hands of the recipient is determined by its quality and nature, not merely by how it is described.

Practical Interpretation

For tax practitioners, TR 2019/1 serves as the primary reference for determining whether a receipt is ordinary income. When advising clients, practitioners should consider the totality of circumstances including the source, regularity, and nature of the payment. The ruling is particularly useful when dealing with unusual or one-off receipts where the income/capital distinction is unclear.

Worked Examples

Common Misconceptions

• ✗That a one-off receipt cannot be ordinary income — regularity is relevant but not determinative.
• ✗That amounts received as 'gifts' are automatically exempt — the substance and context matter, not the label.
• ✗That only cash receipts are income — benefits in kind and non-cash benefits can also be ordinary income.