Private ruling: Income tax
Date of advice: 16 October 2017
Published: March 2018
Ruling period: Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021
Date scheme commenced: 2017

Ruling: Q1: Will donations paid through a personal bank account be classified as income? | A1: No

Relevant facts and circumstances: You are an Australian citizen but a non-resident for tax purposes. You want to set up fund raising for an organisation that does not employ you but to which you have provided assistance. You have set up a separate bank account to receive donations and then transfer them to the organisation. It is kept completely separate from your own personal finances All funds received will be donations only and will be transferred to the organisation’s bank account. You will not charge any fees for this role. People who make donations will not receive anything in return for the donation. You do not expect to earn any interest as funds will be transferred to the organisation’s bank account as quickly as possible. If any interest accrues it will be paid in full to the organisation when the next transfer is processed. The head of the organisation will receive paper copies of your bank account statements so it is completely transparent that all of the funds are being directed to it. All of the funds will be used by the organisation for basic necessities.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5.

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. The donations paid through a personal bank account that you have set up are not considered to be ordinary income to you and are not assessable income. | Detailed Reasoning - Detailed reasoning: Subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer’s assessable income includes ‘income according to ordinary concepts, which is called ordinary income’. Under subsection 6-5(3) of the ITAA 1997: If you are a foreign resident, your assessable income includes: (a) the ordinary income you derived directly or indirectly from all Australian sources during the income year; and (b) other ordinary income that a provision includes in your assessable income for the income year on some basis other than having an Australian source. The term ordinary income is not defined in the legislation. It is therefore necessary to look to the courts for guidance on what constitutes ordinary income. In determining whether an amount is ordinary income, the courts have established the following principles: ● what receipts ought to be treated as income must be determined in accordance with ordinary concepts and usages of mankind, except in so far as a statute dictates otherwise ● whether the payment received is income depends upon a close examination of all relevant circumstances, and ● whether the payment received is income is an objective test. Relevant factors in determining whether a payment is ordinary income include: ● whether the payment is the product of any employment, services rendered, or any business ● whether the payment is expected and relied upon ● the character of the payment in the hands of the recipient ● whether the payment is received as a lump sum or periodically, and ● the motive of the person making the payment, although this is rarely decisive by itself. The characterisation of funds an entity receives through crowdfunding will depend on the circumstances of each case. It is the perspective of the recipient of the crowdfunding monies that matters in analysing the tax issues related to crowdfunding. Generally speaking, gifts do not constitute income according to ordinary concepts. This is provided that such a gift was freely bestowed and was not given for the provision of goods or services. Whether a gift constitutes ordinary income depends on the quality or character of the gift in the hands of the recipient. If the gift is received because of, in respect of, for, or in relation to any income-producing activity of the taxpayer, the gift is generally assessable income. The motive of the donor, recurrence of payments and use of payment by the recipient are also relevant factors in determining whether a payment will be treated as a gift or as ordinary income. Funds received through crowdfunding may be considered gifts in certain circumstances. Whether crowdfunding contributions will be classified as gifts will depend entirely on the facts specific to each project. There are a number of factors that indicate that any money raised through your crowdfunding campaign will not have the characteristics of ordinary income: ● you are not employed by the organisation and any help you provide to it is done in your own time. ● you are not seeking to make a profit or gain for yourself. There are particular reasons for you setting up the bank account into which donations are made. ● you will be transferring all of the funds directly to the organisation’s bank account in and will be implementing procedures to ensure this process is transparent. ● you are not providing anything in return for the donations. It is considered the contributions to your crowdfunding campaign are better described as a gift and therefore do not constitute ordinary income in your hands. Therefore any money raised through your crowdfunding campaign that is transferred to the organisation will not be assessable income. Further information If you are a foreign resident, tax is generally withheld in Australia from interest you earn in Australia. You advise the Australian financial institution that you are a foreign resident and it withholds tax in Australia at the time of payment. You won't need to declare this income in an Australian tax return. The financial institution should withhold tax from interest payments at the rate of 10%. This rate will apply unless: ● the payment is made to a resident of a country which has a tax treaty with Australia, and ● a lower rate is specified in the relevant treaty. If this is the case, the lower treaty rate will apply. Foreign residents do not have to pay us any more tax if their only Australian income is from interest, dividends and royalties which have had the correct amount of withholding tax withheld. Foreign resident payees must lodge an Australian tax return if they have assessable income other than interest, dividends or royalties in Australia.

The advice in the Register has been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict ATO policy or decisions.