Are The Block winnings taxable?

As the title suggests. Quick question. Would the contestants winnings be taxable?

 

I think it would be assesable income - who won?

 

Prize winnings generally not.

 

They are doing a lot of work for their 'prize'!

 

I think the winnings are taxable. A lot of work done with the intention of making a profit.

You would need to talk to the contestants themselves to understand their motives.

 

Still going in my state. Leaders have over 700k so far.

 

I'm pretty sure they are paid a wage to appear on the show. Maybe the winnings are treated in the same way as a bonus? I guess, in away, they are basically employed as project managers for a developer.

 

Just googled and found this:
Income Tax Ruling IT 167, anyone who made regular appearances in radio or television programs, either as an artist or contestant, was liable to pay tax on their prizes.

 

Does it define 'regular'?

 

The Block winnings are not taxed. It is considered a prize winning and based on a non-assured outcome including their selection and ultimate sale based on a reserve set by the promoter. The profit making intention is that of the project owner (Lang) and not the "contestants" and includes sale of TV rights, advertising and sponsor support and much else in determining that outcome under a deal with the promoter. I would imagine that they lose substantially on each property but pickup that loss through all the side issues and rights sale of the show and the advertising and sponsorship deals. Note that this year the site incorporated over 50 property units (mainly townhouses) in the development a feature quietly glossed over.

Past "winners" have won nothing. However the sustenance income they are paid weekly is taxed as income (yes they are paid a nominal sum. I believe its around $250 per person per week).

However payment for repeat appearances etc would be considered income and taxed. The irregular appearances by past contestants likely would not satisfy this unless they appear in conjunction with promoting their own business. If they have one.

In a past year someone asked if the tradies could claim the same exemption. No chance. They offer business services, and all are registered businesses who submit tax invoices. They agree to waivers to appear for free and usually offer services (well) below cost in exchange for self promotion opportunities controlled by the promoter.

 

That's what I would have thought. This article back from 2003 disagrees:

National Tax and Accountants' Association president Ray Regan said that under Income Tax Ruling IT 167, anyone who made regular appearances in radio or television programs, either as an artist or contestant, was liable to pay tax on their prizes.

Mr Regan said The Block contestants would be taxed 48.5 per cent of their prizemoney, which could result in some being left with a tax bill in the tens of thousands of dollars.

Mr Regan said this situation applied to all such competition winners - including shows like Big Brother - and was "an absolute outrage".
​

Tax shock for The Block - theage.com.au

But this one agrees with us:- winnings are tax free...

The sale price was a staggering $636,000 over the reserve amount and, coupled with their $100,000 prize money, the likeable pair walked away with a phenomenal $736,000… tax free! It’s hard to even understand what that kind of money that is… let alone it being all yours.​

Steve and Chantelle Win The Block | The Block Shop

From the little info on the ATO web site, the key seems to be "if you regularly receive appearance fees or game-show winnings". It would hinge around the definition of "regularly".

Prizes and awards
If you've won something in a prize draw or lottery run by your bank, building society, credit union or other investment body, you must declare on your tax return the value of any benefits or prizes you received. Prizes may include cash, low-interest or interest-free loans, holidays or cars.

However, you don't need to declare prizes won in ordinary lotteries such as lotto draws and raffles.

If you've been a game show contestant, you only declare prizes you won if you regularly receive appearance fees or game-show winnings.

If you sell or otherwise dispose of an asset that was a prize from a lottery, you may make a capital gain, which must be declared on your tax return.​

Other income

 

I wish it was that simple. Regan is merely citing a ATO view is use of the word "regular". That isnt necessarily the relevant law. He should have known better. The word regular occurs in the concept of recurring income according to s6-5 which ties to s15-2 which refers to earnings...Regularity being a feature of earnings.

Allow an explanation. Income is taxed according to both statutory and common law. Statute includes the Income Tax Assessment Act 1997 which does not actually prescribe any rule about prizes. However s6-5, s6-10 and s15-2 etc refer to income concepts. These rules require understanding of common law ie court precedent decisions.

The ATO has a paper ID 2002/644 which explores this concept and provides link between the statute and precedent and provides a taxpayer "ruling" that guides such cases.

I wouldnt rely on website posting from donkeys years back as a guide to tax law. You may end up with this post !!

Now ask yourself this. Would the ATO seek to tax all powerball and lotto wins if a person regularly buys tickets and has minor winnings ??....Ask why not. Its the same concept. The key words are "windfall gains".

Also the cricketer (a South African ?) who wins player of the match and wins a money or car prize...Assessable ? You bet it is.

 

I wouldnt rely on website posting either, even if it was recent. There is a more reputable web site where people are taking tax advice. Just because the poster is a professional and has a reputation in the area doesn't mean that person is always right. Or there may be a peculiarity that means that general tax principles don't apply in a particular case.

If I won $500k + on a game show, I would not assume it was taxable and would not ask the internet if it was. I would use some of the winnings to pay for proper, professional tax advice.

 

.

 

We all know that a PBR is non-binding however, these provide some interesting insights:

Austax
Austax

Ordinary income
Under subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997), ordinary income means income 'according to ordinary concepts'.

Generally, a gift or prize is regarded as a personal windfall gain and not as ordinary income unless the taxpayer has received the prize or gift because of, in respect of, or in relation to any income-producing activity of the taxpayer.

In determining whether a prize or gift is ordinary income, the courts have established that consideration of the whole of the circumstances is necessary and that the following factors need to be taken into account:

● how, in what capacity, and for what reason the recipient received the prize or gift

● whether the prize or gift is of a kind which is a common incident of the recipient's calling or occupation

● whether the prize or gift is made voluntarily

● whether the prize or gift is solicited

● whether the prize or gift can be traced to gratitude engendered by some service rendered by the recipient to the prize or gift donor

● the motive of the prize or gift donor (through this factor is rarely decisive in itself), and

● whether the recipient relies on the prize or gift for regular maintenance of themselves and any dependants.

 

I'd do both

 

All of which is a requote of ID 2002/644.

 

Great post. Years ago I had a client approach me and I was stunned by the value of the tax problem. It was 40+ million US dollars arising from a court action over a CGT issue, a income issue and a foreign income issue all settled years after person came back to AU to live. Question was is any of it taxable in USA, Any taxable here ? CGT application ? Exempt as damages ?

Cost him $16,000 for advice which confirmed it was not damages and also not taxable in any jurisdiction. It literally fell in the cracks when he changed residency. He reckons it was best $16k he ever spent. That included a ATO written opinion and a IRS opinion on same. The $16K was largely spend o written opinions. The first $3K was verbal advice. He felt $13K was nothing for the confidence of having written advice from both tax agencies.

 

On a similar topic, if you won the latest RSL Union lottery apartment block valued at 4Mil, and sold it for 4 Mil, would the proceeds of the sale be taxable?

 

Cost base would be the market value at date of receipt probably