1. KELLY V FC OF TKELLY V FC OF T
85 ATC 428385 ATC 4283
Assessable IncomeAssessable Income
Presented ByPresented By::
SAYED HUSSAINI PASHASAYED HUSSAINI PASHA
662006X662006X

2. Key FactsKey Facts::
 The tax payer was a professional football playerThe tax payer was a professional football player
who played for East Perth, a club in the Westernwho played for East Perth, a club in the Western
Australia National Football League.Australia National Football League.
 The tax payer received a cash award of $20,000The tax payer received a cash award of $20,000
from channel 7 television station for being votedfrom channel 7 television station for being voted
the league's best and fairest player in 1978the league's best and fairest player in 1978
season.season.
 Channel 7 did this to promote its image ofChannel 7 did this to promote its image of
supporting the league in the eyes of the public,supporting the league in the eyes of the public,
with the aim of attracting viewers to its station.with the aim of attracting viewers to its station.

3. IssueIssue::
Was the $20,000 cash award assessable toWas the $20,000 cash award assessable to
the taxpayer under either sec 6-5 (2) ITAAthe taxpayer under either sec 6-5 (2) ITAA
97 or sec 15-2 ITAA 9797 or sec 15-2 ITAA 97??

4. Decision:Decision:
Supreme court of Western Australia:Supreme court of Western Australia:
Franklyn J.Franklyn J.
As the award received was of anAs the award received was of an
income nature, the $20,000 cash receivedincome nature, the $20,000 cash received
by the tax payer from channel 7 wasby the tax payer from channel 7 was
assessable under both s 6-5 (2) as well asassessable under both s 6-5 (2) as well as
s 15-2s 15-2

5. DiscussionDiscussion::
 The award was of an income nature and there wasThe award was of an income nature and there was
sufficient link between the tax payer's receipt and hissufficient link between the tax payer's receipt and his
employment. The payment was made to the taxpayeremployment. The payment was made to the taxpayer
because of the taxpayer's activity as a professionalbecause of the taxpayer's activity as a professional
footballer and his playing football to the best of his skillfootballer and his playing football to the best of his skill
and ability.and ability.
 The payment was directly related to the taxpayer'sThe payment was directly related to the taxpayer's
employment by his club as a footballer. His employmentemployment by his club as a footballer. His employment
"caused" the payment as his employment made him"caused" the payment as his employment made him
eligible to receive the payment by winning the Sandovereligible to receive the payment by winning the Sandover
Medal and also eligible him to play to the best of hisMedal and also eligible him to play to the best of his
abilities.abilities.

6. ConclusionConclusion::
 Payments made by third parties become of anPayments made by third parties become of an
income nature when they are sufficientlyincome nature when they are sufficiently
““incidentalincidental”” to a taxpayerto a taxpayer’’s employment.s employment.
 A subsequent Australian case regarding theA subsequent Australian case regarding the
issue of "distinguishing between award forissue of "distinguishing between award for
services and mere gift/award" isservices and mere gift/award" is SCOTT V FCSCOTT V FC
OF T (1966) 117 CLR 514OF T (1966) 117 CLR 514,, involvinginvolving
differentiating between gift and reward fordifferentiating between gift and reward for
services.services.

7. References:References:
 CCH a Wolters Kluwer Business 2011,CCH a Wolters Kluwer Business 2011,
Foundations of Taxation Law, 3Foundations of Taxation Law, 3rdrd
edition.edition.
Para 13.4Para 13.4
 Stephen Barkoczy 2008, Australian TaxStephen Barkoczy 2008, Australian Tax
Casebook, 9Casebook, 9thth
edition.edition.

8. Case:Case: Payne v FC OF TPayne v FC OF T
Presented ByPresented By::
Kanav JainKanav Jain
66216436621643

9. KeyKey FactsFacts
The taxpayer was employed by an accounting firm, KPMG and used toThe taxpayer was employed by an accounting firm, KPMG and used to
travel on Qantas frequently for business purposes, which were paidtravel on Qantas frequently for business purposes, which were paid
by KPMG. While on business flight, taxpayer became the memberby KPMG. While on business flight, taxpayer became the member
of the Qantas Frequent Flyer Program, paying the membership feeof the Qantas Frequent Flyer Program, paying the membership fee
herself. Under the program, member received points for eachherself. Under the program, member received points for each
kilometer they travel, which could be redeemed for a reward ticketkilometer they travel, which could be redeemed for a reward ticket
for the member or a person in the member’s family and that ticketfor the member or a person in the member’s family and that ticket
could not be sold or transferredcould not be sold or transferred..
After some time, taxpayer accumulated 190139 points in the programAfter some time, taxpayer accumulated 190139 points in the program
and redeemed 190000 points as a reward ticket for her parentsand redeemed 190000 points as a reward ticket for her parents..

10. IssueIssue
Whether the reward tickets constitute assessable income under sec 6(5) orWhether the reward tickets constitute assessable income under sec 6(5) or
15(215(2)?)?

11. DiscussionDiscussion
First issue here is,whether reward ticket is assessable under sec 6(5) or not?First issue here is,whether reward ticket is assessable under sec 6(5) or not?
The income is assessable u/s 6(5), if it is generated according to ordinaryThe income is assessable u/s 6(5), if it is generated according to ordinary
concepts of income. Income can be generated through rent, interest,concepts of income. Income can be generated through rent, interest,
royalties or dividends. In this case, the reward ticket is not an income androyalties or dividends. In this case, the reward ticket is not an income and
does not fall in sec 6(5) of ordinary income. The reward ticket was notdoes not fall in sec 6(5) of ordinary income. The reward ticket was not
convertible or transferable into money, so there was no money element. Soconvertible or transferable into money, so there was no money element. So
it can-not be regarded as income u/s 6(5). This is similar to the caseit can-not be regarded as income u/s 6(5). This is similar to the case FCFC
OF T v CookeOF T v Cooke & Sherden& Sherden,, where soft drink retailers that were providedwhere soft drink retailers that were provided
with free overseas holidays by a soft drink manufacturer as part of saleswith free overseas holidays by a soft drink manufacturer as part of sales
incentives scheme were not assessed on the value of holidays, as theincentives scheme were not assessed on the value of holidays, as the
holidays were not transferable and could not be converted into money.holidays were not transferable and could not be converted into money.
Hence, in this case also reward ticket is not assessable under sec 6(5Hence, in this case also reward ticket is not assessable under sec 6(5).).

12. Second issue here is, whether it can be assessable u/s 15(2) or not? AllSecond issue here is, whether it can be assessable u/s 15(2) or not? All
allowances, gratuities, compensation, benefits, bonuses and premiumsallowances, gratuities, compensation, benefits, bonuses and premiums
provided directly or indirectly in relation to any employment or serviceprovided directly or indirectly in relation to any employment or service
rendered, is included in the assessable income u/s 15(2). If we will seerendered, is included in the assessable income u/s 15(2). If we will see
Smith vFC Of TSmith vFC Of T case, there was employer employee relationship and thecase, there was employer employee relationship and the
payment as an incentive, was made in relation to taxpayer’s employmentpayment as an incentive, was made in relation to taxpayer’s employment..
So in that case, the payment made as an incentive was assessable u/s 15(2So in that case, the payment made as an incentive was assessable u/s 15(2).).
But in this case, there was no employer employee relationship available andBut in this case, there was no employer employee relationship available and
KPMG did not provide any benefit or made payment for that QantasKPMG did not provide any benefit or made payment for that Qantas
frequent flyer program. The employer did not arrange anything for thefrequent flyer program. The employer did not arrange anything for the
employee to participate in the scheme .The taxpayer herself signed theemployee to participate in the scheme .The taxpayer herself signed the
membership card and made payment herself. So it can-not be assessable asmembership card and made payment herself. So it can-not be assessable as
income u/s 15(2) alsoincome u/s 15(2) also..

13. DecisionDecision
The court held that the reward tickets did not constitute assessable incomeThe court held that the reward tickets did not constitute assessable income
under either sec 6(5) or 15(2under either sec 6(5) or 15(2).).