Private ruling: Income - assessable income
Date of advice: 22 June 2023
Published: 14 August 2023
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are the moneys received by Entity A from donors assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. | Q2: Are the moneys received by Entity A from donors assessable under the capital gains tax provisions? | A2: No. | Q3: Are the moneys received by Entity A from donors assessable as statutory income under section 6-10 of the ITAA 1997? | A3: No.

Relevant facts and circumstances: Entity A is an association incorporated under the relevant Act. Entity A has a statement of objects. Entity A has registration to raise funds. Entity A operates through a network of members to collect donations for community based charity projects from the member's customers. Entity A's funding guidelines align closely to its statement of objects. Entity A does not withhold any commission from the pool of donations collected. Moneys are raised and disbursed by Entity A in specified ways.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 6-1(1) | Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-10

Reasons for decision: Summary: Unless otherwise stated, all legislative references are to the Income Tax Assessment Act 1997 . Assessable income is defined in subsection 6-1(1) as consisting of ordinary income and statutory income. Under section 6-5 the assessable income of an Australian resident includes the ordinary income derived directly or indirectly from all sources. "Ordinary income" is defined to mean income according to ordinary concepts. Section 6-10 defines statutory income as amounts that are not ordinary income but are included in your assessable income by provisions about assessable income. Although the legislation does not provide specific guidance of what is meant by "ordinary income", substantial case law has evolved to indicate whether an amount is income according to ordinary concepts. In GP International Pipecoaters Pty Ltd v FC of T 90 ATC 4413 at p 4420 the High Court stated that: To determine whether a receipt is of an income or a capital nature, various factors may be relevant. Sometimes, the character of receipts will be revealed most clearly by their periodicity, regularity or recurrence; sometimes, by the character of a right disposed of in exchange for the receipt; sometimes by the scope of the transaction, venture or business in or by reason of which money is received and by the recipient's purpose in engaging in the transaction, venture or business. Entity A has registration to raise funds. Entity A operates through a network of members to collect donations for community based charity projects from the member's customers. Entity A's funding guidelines align closely to its statement of objects. Entity A does not withhold any commission from the pool of donations collected. Once the target funding is achieved entity A will automatically cease the collection of further donations. Whether moneys from donors are assessable income depends on the scope of the transaction by reason of which the money was received and entity A's purpose in requesting the moneys. The donations made can be characterised as a voluntary payment or gift not related in any way to the business activities of Entity A. The donations made are not made in respect of any services provided by Entity A. In order to characterise the donations as business receipts there must be a service provided by Entity A or a fulfilment of a contract obligation by Entity A. Neither of these attributes are apparent in the manner and purpose in which the donations are collected and its subsequent disbursement. Additionally, Entity A's purpose in raising the money is aligned to its charitable objects. Following from the above the moneys received from donors will not constitute ordinary income as they are not made in respect of any services provided by Entity A. The donations are voluntary and are made out of a desire to gift. Furthermore, the payments will not represent capital proceeds from a capital gains tax event and are not assessable under the capital gains tax provisions. The donations will not constitute statutory income in the hands of Entity A. There are no tax provisions that make such receipts assessable income.