Private ruling: Income from donations
Published: June 2012
Ruling period: Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2009

Ruling: Questions and Answers | Are the moneys received by the entity from donors ordinary income for the purposes of section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | No. | Putting aside section 102-5 of the ITAA 1997, are the moneys received by the entity from donors statutory income for the purposes of section 6-10 of the ITAA 1997? | No. | Does the entity make a capital gain pursuant to the ITAA 1997 when it receives moneys from donors? | No.

Relevant facts and circumstances: The entity is an association incorporated under an Act. The entity has also adopted model rules for organisations similar to itself. The entity's statement of objects which accompanied its application for incorporation states that the entity's Network is an alliance of e-commerce businesses and their customers. Using web technologies, the entity aggregates thousands of their micro donations made with online transactions to fund community development projects that help end poverty. All projects funded by the entity will meet the aim to eradicate extreme poverty. Moneys are raised and disbursed by the entity in the following way: A group or organisation which may be locally or overseas based and which may or may not be charitable in the technical sense approaches the entity for funding. Following careful considerations as to the merits of the project and taking into account certain criteria, the entity determines whether it will in principle assist with the funding of the project. If the project passes this first step it is recorded in a register, there is further consideration and information gathering in respect of the project by the liaison person at the organisation that is seeking the funding. This is followed by a written proposal by the organisation seeking the funding and it is only once the entity has accepted the proposal and the budget is a final decision made to assist with the funding of the project. If it is decided to assist then: · The entity enters into an agreement with the organisation that has sought the funding, · The entity raises the money through its webservice which is an internet based funding mechanism that is integrated into e-commerce sites of members with whom the entity has entered into an agreement, · Individual online consumers choose to make small donations on the back of their online shopping purchases on a member's website, · The donations are banked as they are raised in the member's bank account, · The entity collects the aggregated donations from members on a monthly basis, · Once a project has reached its target there is automatic cessation of any collection of further donation, · The entity distributes the money raised to the organisation that has sought the funding within 60 days of reaching the target.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5, | Income Tax Assessment Act 1997 Section 6-10, | Income Tax Assessment Act 1997 Section 102-20 and | Income Tax Assessment Act 1997 Division 104 of Part 3-1.

Reasons for decision: Summary: Assessable income is defined in subsection 6-1(1) of the ITAA 1997 as consisting of ordinary income and statutory income. Section 6-5 of the ITAA 1997 states that 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 of the ITAA 1997 defines statutory income as amounts that are not ordinary income but are included by some provision of the ITAA 1997. 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. The entity has registration to raise funds pursuant to the fund raising act of a state in Australia. The entity in its statement of objects say that its object is to fund community development projects that help end poverty. These objects have not been amended. The categories of payments receivable by the entity under its Model Rules are: · Entrance fees · Annual subscriptions of members · Donations · Such other sources as the committee determines The entity operates through a network of members that use their e-commerce business facilities to collect donations for community based charity projects from the member's customers. Members of the entity's network select the charity projects to contribute to using the member's e-commerce facility. The member collects donations on the back of their online customers shopping purchase for the projects chosen and then pays the donations to the entity for distribution by the entity to the Charity. The entity's funding guidelines align closely to its statement of objects which is principally to fund community development projects that help end poverty. The entity does not withhold any commission from the pool of donations collected by its business members. The entity's role is to facilitate the process of collection of the donations by providing its members use of the entity's interface program used to record donations collected by its members for charity projects. Its role also includes the disbursements of the donations to the charities accepted by the entity as meeting its funding guidelines. Once the target funding is achieved the entity's interface program 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 the entity's purpose in requesting the moneys. The donations made by the member's online customers can be characterised as a voluntary payment or gift not related in any way to the business activities of the entity. The donations made by the member's online customers are not made in respect of any services provided by the entity. In order to characterise the donations as business receipts there must be a service provided by the entity or a fulfilment of a contract obligation by the entity for either its business members or its business member's customers. Neither of these attributes are apparent in the manner and purpose in which the donations are collected and its subsequent disbursement. The donations were made by the business member's customers upon the representation of the Charity trade marks on its e-commerce website. Additionally the entity's purpose in raising the money is aligned to its charitable objects. Based upon the above arguments the moneys received from donors will not constitute ordinary income as they are not made in respect of any services provided by the entity. The donations were made by the business member's customer on the back of online purchases where the charity supported is clearly promoted on its website. The donations are voluntary and are made out of a desire to gift. The donations will not constitute statutory income in the hands of the entity. There are no provisions in the tax law that make such receipts assessable income. The payments will also not represent the capital proceeds from a capital gains tax event.

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