Division 6—Assessable income and exempt income- Australian Taxation

• Ordinary Income

1. Your assessable income includes income according to ordinary concepts, which is called ordinary income.

Note: Some of the provisions about assessable income listed in section 10-5 may affect the treatment of ordinary income.

2. For Australian resident,

Assessable Income includes the *ordinary income you *derived directly or indirectly from all sources, whether in or out of Australia.

3. For foreign resident,

Assessable Income includes: -

1. the *ordinary income you *derived directly or indirectly from all *Australian sources during the income year; and

1. other *ordinary income that a provision includes in your assessable income for the income year on some basis other than having an *Australian source.

“This refers to income that is included in your assessable income for the year, even if it does not come from an Australian source. It is governed by specific provisions of the Act. For example, foreign residents may have certain types of income included in their assessable income based on rules other than the source of the income”

4. In working out whether you have derived an amount of *ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.

“This means that for tax purposes, you are considered to have "derived" or received an amount of ordinary income as soon as it is either:

• Applied on your behalf: For example, if the income is used to pay off a debt or purchase something for you.
• Dealt with as you direct: For instance, if you instruct someone to transfer the income to another person or account.”

• Other assessable income (statutory income)

1. Your assessable income also includes some amounts that are not *ordinary income.

Note: These are included by provisions about assessable income. For a summary list of these provisions, see section 10-5.

2. Amounts that are not *ordinary income but are included in your assessable income by provisions about assessable income, are called statutory income.

Note 1: statutory income because may be exempt income or non-assessable non-exempt income under another provision: see sections 6-20 and 6-23.

3. If an amount would be *statutory income apart from the fact that you have not received it, it becomes statutory income as soon as it is applied or dealt with in any way on your behalf or as you direct.

This means that an amount becomes statutory income for tax purposes as soon as it is used, applied, or managed in a way that benefits you or follows your instructions, even if you haven't physically received it.

4. For Australian resident, your assessable income includes

*Statutory income from all sources, whether in or out of Australia

5. For foreign resident, your assessable income includes:
   1. your *statutory income from all *Australian sources; and
   2. other *statutory income that a provision includes in your assessable income on some basis other than having an *Australian source.

• What is not assessable income. 

1. If an amount is not *ordinary income, and is not *statutory income, it is not assessable income (so you do not have to pay income tax on it).

2. If an amount is *exempt income, it is not assessable income.

Note-If an amount is exempt income, there are other consequences besides it being exempt from income tax. For example:

• The amount may be taken into account in working out the amount of a tax loss (see section 36-10);
• you cannot deduct as a general deduction a loss or outgoing incurred in deriving the amount (see Division 8);
• capital gains and losses on assets used solely to produce exempt income are disregarded (see section 118-12).

3. If an amount is *non-assessable non-exempt income, it is not assessable income.

Note 1: You cannot deduct as a general deduction a loss or outgoing incurred in deriving an amount of non-assessable non-exempt income (see Division 8).

Note 2: Capital gains and losses on assets used to produce some types of non-assessable non-exempt income are disregarded (see section 118-12).

• What is not assessable income.

1. An amount of *ordinary income or *statutory income is exempt income if it is made exempt from income tax by a provision of this Act or another *Commonwealth law.

For summary lists of provisions about exempt income, see sections 11-5 and 11-15.

2. Ordinary income is also exempt income to the extent that this Act excludes it (expressly or by implication) from being assessable income.
3. By contrast, an amount of *statutory income is exempt income only if it is made exempt from income tax by a provision of this Act outside this Division or another *Commonwealth law.
4. If an amount of *ordinary income or *statutory income is *non-assessable non-exempt income, it is not exempt income.

Note: An amount of non-assessable non-exempt income is not taken into account in working out the amount of a tax loss.

• Exempt income

1. An amount of *ordinary income or *statutory income is exempt income if it is made exempt from income tax by a provision of this Act or another *Commonwealth law.

(For summary lists of provisions about exempt income, see sections 11-5 and 11-15.)

2. *Ordinary income is also exempt income to the extent that this Act excludes it (expressly or by implication) from being assessable income.
3. By contrast, an amount of *statutory income is exempt income only if it is made exempt from income tax by a provision of this Act outside this Division or another *Commonwealth law.
4. If an amount of *ordinary income or *statutory income is *non-assessable non-exempt income, it is not exempt income.

Note: An amount of non-assessable non-exempt income is not taken into account in working out the amount of a tax loss.

6-23 non-assessable non-exempt income

1. An amount of *ordinary income or *statutory income is non-assessable non-exempt income if a provision of this Act or of another *Commonwealth law states that it is not assessable income and is not *exempt income.

Note: Capital gains and losses on assets used to produce some types of non-assessable non-exempt income are disregarded (see section 118-12).

For a summary list of provisions about non-assessable non-exempt income, see Subdivision 11-B.

6-25 Relationships among various rules about ordinary income

1. Sometimes more than one rule includes an amount in your assessable income:
   • The same amount may be *ordinary income and may also be included in your assessable income by one or more provisions about assessable income; or
   • the same amount may be included in your assessable income by more than one provision about assessable income.

For a summary list of the provisions about assessable income, see section 10-5.

However, the amount is included only once in your assessable income for an income year, and is then not included in your assessable income for any other income year.

2. Unless the contrary intention appears, the provisions of this Act (outside this Part) prevail over the rules about *ordinary income.

Note: This Act contains some specific provisions about how far the rules about ordinary income prevail over the other provisions of this Ac

Chart Showing Taxability

*Other ordinary income that a provision includes in your assessable income for the income year on some basis other than having an Australian source.

Note: -Ordinary Income that is applied on your behalf & dealt with as you direct will be treated as derived or received.