Ordinary Income: FCT v Stone [2005] HCA 21; 2005 ATC 4234

Caselaw in taxation: FCT v Stone (2005)

  • The case:
    • The taxpayer was a police officer in the Queensland Police Force
      • She received $39,832 salary as a police officer
    • She also represented Australia in sport at numerous athletics meetings, including the Olympic Games and World Cup.
      • She received sporting receipts of $136,448, consisting of:
        1. prize moneys of $93,429
        2. government grants of $27,900 (consisting of QAS grant of $5,400 and another grant of $22,500)
        3. sponsorship moneys of $12,419
        4. appearance moneys of $2,700
      • From being “role model of the year”, she also received:
        1. $1,600 from Oceania Amateur Athletics Association
        2. $1,000 from Little Athletics
    • She returned as her assessable income $39,832 (salary as a police officer), listed the sporting receipts but claimed that they were not assessable income.
    • The Commisioner included them as assessable income
      • The taxpayer objected but the Commissioner did not allow her objection.
      • The taxpayer appealed to the Federal Court.
  • The principles (paras 18-19):
    • There is a fundamental difficulty that lurks behind questions like whether the taxpayer was conducting a business
    • The question may be thought to assume that activities associated with the receipt of sums can always be divided into separate categories.
    • As we pointed out, however, in the majority reasons in FC of T v Montgomery, general propositions in this field of discourse often require some qualification:
      “… [I]ncome is often (but not aways) a product of exploitation of capital; income is often (but not always) recurrent or periodical; receipts from carrying on a business are mostly (but not always) income.”
    • Sporting activites may often (but will not always) be distinct from business activities. A taxpayer’s sport is often (but not always) distinct from that taxpayer’s career or business.
    • To conclude, as the Full Court did, that the taxpayer “is a career police woman … [who] has not been engaged in a business activity to exploit her sporting prowess or to turn her talent to account in money” may assume that “career” and “sport” not only lie at opposite ends of a relevant spectrum of activities, but that their location on that spectrum dictates the answer to the question which is presented.Those assumptions, if made, can mislead.
    • To decide whether receipts of a taxpayer form part of that taxpayer’s assessable income there must be undertaken “a wide survey and an exact scrutiny of the taxpayer’s activities”.
    • To that end, it is necessary to say more about the facts.
  • The decisions:
    1. The taxpayer appeal to the Federal Court.
      • The taxpayer:
        1. agreed that the sponsorship amounts were income
        2. however, submitted that the remaining amounts were not income because:
          • she did not carry on any business activity
          • none of the amounts were a reward for services (that is a character of income)
            – none of the amounts were relied on by her to meet her daily expenditure (that is a character of income)
      • The Commissioner conceded that the $1,000 from Little Atheltics was not income.
      • The Court’s decision:
        • the taxpayer was carrying on a business and that all of the rewards of the business, including those incidental to that business, were income in accordance with ordinary concepts.
    2. The taxpayer apeal to the Full Federal Court, maintaining that the dispted receipts were not assessable income.
      • The Full Court’s decision:
        1. the prize money and the grants were not assessable income
        2. the appearance moneys were assessable income
    3. The Commissioner appealed against the Full Court’s decision while the taxpayer cross-appealed against the decision (b)
      • The Commissioner submitted that:
        • the sums were business income because the taxpayer had turned her talent as an athlete to account for money
      • The taxpayer submitted that:
        • the receipts in issue were to be treated as income only if the relevant receipts arose form an act done in carrying on a business.
        • In fact, she was not conducting a business.
      • The High Court’s decision: appeal allowed, cross-appeal dismissed
        1. All the receipts in question were related to the taxpayer’s athletic activities. The athletic activities of the taxpayer constituted the conduct of a business. Her pursuit of excellence, if successful, necessarily entailed the receipt of prizes, increased grants, and the opportunity to obtain more generous sponsorship arrangements
        2. The payment of grant from QAS and another grantor were rewards from the conduct of her business – the business of deriving financial reward from competing and winning in the athletics arena.

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