Private ruling: Mutuality principle
Date of advice: 29 April 2020
Published: June 2020
Ruling period: Income year ending 30 June 2020 | Income year ending 30 June 2021 | Income year ending 30 June 2022 | Income year ending 30 June 2023 | Income year ending 30 June 2024 | Income year ending 30 June 2025
Date scheme commenced: 1 July 2019

Ruling: Q1: Will the mutuality principle apply to members' contributions which are paid to the proposed discretionary trust so that these receipts are not assessable to the trustee of the trust as ordinary income under section 6-5 of the ITAA 1997? | A1: Yes, mutuality will apply to the members' contribution except for the component related to Insurance Cover. The Insurance Cover component forms part of the trust estate and will also not be assessable income. | Q2: Will the mutuality principle apply to members' contributions which are paid to the proposed discretionary trust so that these receipts are not assessable to the trustee of the trust as statutory income under section 6-10 of the ITAA 1997? | A2: Yes, mutuality will apply to the members' contribution except for the component related to Insurance Cover. The Insurance Cover component forms part of the trust estate and will also not be assessable income | Q3: Is interest income derived by the trustee of the discretionary trust assessable as ordinary income under section 6-5 of ITAA 1997? | A3: Yes | Q4: On the basis that the interest income is included in the assessable income of the trustee of the discretionary trust, in the determination of net income of the trust under Division 6 of the ITAA 1936, will expenses incurred in producing interest income be allowable as deductions? | A4: Yes

Relevant facts and circumstances: 1. The Company will set up a discretionary trust to provide discretionary protection and insurance to beneficiaries (members) to manage risks faced by members in their operations. 2. The Company will be the trustee of the discretionary trust 3. The discretionary trust will be operated for the benefit of members and will use the combined purchasing power of the members to spread the cost of risk. 4. Member claims for discretionary protection are at the discretion of the trustee of the trust. 5. The insurance is provided by a third party insurer and the insurance policy is between the insurer and the trustee with members as a third party beneficiary. 6. Claims under the insurance policy are made to the insurer and are not subject to the trustee's discretion. 7. Members are required to pay a single un-dissected lump sum contribution that covers the discretionary protection and the insurance. 8. The contribution is designed to ensure that the discretionary trust has sufficient funds to cover the cost of member claims. 9. Surplus funds will be invested in a basic bank account. 10. Under the terms of the discretionary trust: - Members make contributions for the common purpose of managing risks - Members have equitable interest in the trust property (they are the sole discretionary beneficiaries), and can remove the trustee. - Members are entitled to a return of any surplus contributions

Relevant legislative provisions: Section 95 of the Income Tax Assessment Act 1936 | Section 6-5 of the Income Tax Assessment Act 1997 | Section 6-10 of the Income Tax Assessment Act 1997

Reasons for decision: Detailed Reasoning - Question 1-2: Section 6-5 of the ITAA 1997 provides that assessable income includes income according to ordinary concepts, which is called ordinary income. Section 6-10 of the ITAA 1997 provides that assessable income also includes statutory income (amounts included by provisions about assessable income). Amounts which are neither ordinary income nor statutory income are not assessable under section 6-5 and 6-10 respectively. A mutual receipt is not income. Therefore if the members' contributions, paid to the proposed discretionary trust, are mutual receipts they will not be assessable income to the Trustee of discretionary trust, under either section 6-5 or 6-10 of ITAA 1997. | Detailed Reasoning - Mutuality: A receipt will not be income if it is subject to the principle of mutuality. In The Bohemians Club v The Acting Federal Commissioner of Taxation [1918] 24 CLR 334 ( Bohemians Club) , Griffith CJ stated at 337-338: A man is not the source of his own income, though in another sense his exertions may be so described. A man's income consists of moneys derived from sources outside himself. Contributions made by a person for expenditure in his business or otherwise for his own benefit cannot be regarded as his income unless the Legislature expressly so declares. The above comments of Griffith CJ have formed the basis of the principle of mutuality as it applies in Australia. As such, a receipt by a taxpayer will not have the quality of ordinary income if the mutuality principle applies to it. The essence of the mutuality principle is that you cannot derive any gain, and therefore income, from dealings with yourself. The mutuality principle provides that where a number of people associate for a common purpose and contribute to a common fund in which they are all interested, any surplus of those contributions remaining after the fund has been applied to the common purpose is not income or profit. The mutuality principle was described by McTiernan J in Revesby Credit Union Cooperative Ltd v Federal Commissioner of Taxation (1965) 112 CLR 564 ( Revesby Credit Union ) at 574-575: The principle of mutuality seems to me to be settled. Where a number of people contribute to a fund created and controlled by them for a common purpose any surplus paid to the contributors after the use of the fund for the common purpose is not income but is to be regarded as a mere repayment of the contributor's own money...Incorporation of the fund is not relevant...What is required is that the fund must have been created for the common purpose and owned or controlled wholly by the contributors. If it is owned or controlled by anyone else the principle cannot apply...Furthermore any contributions to the fund derived from sources other than the contributors' payments, such as interest from the investment of part of the fund, or income from a business activity conducted by the members, cannot be taken into account in computing the surplus...Also the cases establish that the principle cannot apply unless at any given point in time the contributors to the fund are identical with the beneficiaries of the distribution of the surplus. A number of authorities have established the application of the mutuality principle in Australia. They include Bohemians Club , Revesby Credit Union , Social Credit Savings & Loan Society Ltd v. FC of T 125 CLR 560 ( Social Credit Savings & Loan Society) , Sydney Water Board Employees Credit Union Ltd v. FC of T (1973) 73 ATC 4129 ( Sydney Water Board ), Royal Automobile Club of Victoria (RACV) v. Federal Commissioner of Taxation 73 ATC 4153 ( RACV ), and FC of T v. Australian Music Traders Association (1990) 90 ATC 4536 ( Music Traders ). The principle of mutuality has the following characteristics: · persons (contributors) make contributions out of their own moneys to a common fund (which they create, own, control and all have an interest in) for a common purpose (which may also be for their personal benefit as participators) and that purpose is not undertaken for profit, · complete identity as a class between the contributors and the participators, · contributions are based on an estimate of expected expenses of the common purpose (mutual liabilities), and are made on the stipulation that any surplus (the unused or unexpected amount) will be, sooner or later, returned/repaid to the contributors (in their capacity as contributors) in some form or other, and · a reasonable relationship between what a person contributes and what the person may be expected or entitled to receive in respect of the common fund, The mutuality principle applies where an organisation has incorporated provided the incorporated entity operates as an entity of convenience or instrument of the common purpose of its members. In Coleambally , Beaumont, Merkel and Hely JJ said at 4842: In North Ryde RSL Community Club Ltd v FC of T 2002 ATC 4293; (2002) 121 FCR 1, the Full Court (Spender, Finn and Merkel JJ) said that it is (at ATC 4302; FCR 13) 'well enough established' that the mutuality principle, in addition to applying to refunds of contributions made to a common fund, may also apply to contributions made and distributions received where the persons who associate for a common purpose and contribute to a common fund have incorporated to effectuate their common purpose, provided the company can properly be treated as an entity for their convenience. In such cases, the fact of incorporation is irrelevant: Revesby Credit Union Co-operative Ltd v FC of T (1965) 13 ATD 449 at 453; (1964-1965) 112 CLR 564 at 574. Similarly, it is accepted that the mutuality principle could apply to persons who associate for a common purpose and decide that the common fund created for their common purpose is best brought about by the establishment of a fund under an instrument of trust. Therefore, a discretionary trust, with a corporate trustee, is a suitable vehicle of the management of the common fund provided that all the elements of mutuality as expressed by Australian courts are present. Existence of a common fund controlled by the contributors for a common purpose For the principle of mutuality to apply there must be a common fund. It can be described as a fund established by contributors for a common purpose in which contributing members, as a class, have rights. The fund must be owned or controlled wholly by the contributors. If it is owned and controlled by anyone else the principle cannot apply [1] . A trust fund will be created that will pool contributions paid by members to provide discretionary protection and insurance protection (by an insurance provider) to manage risks faced by members in their operations. The trust fund will be held and managed in accordance with the trust deed. Under the trust deed: · The Members (Contributors) make contributions to the trust fund to manage risks they face in their operation; there is a common fund (the trust fund) for a common purpose (the purpose of the trust). · The Members have equitable interests in the trust property (they are discretionary objects - the Trustee may apply funds to pay claims for members at its discretion). The Members have the power to remove the Trustee of the trust fund. · The Members are entitled to the return of any surplus contributions made to the common fund. It is accepted that a common fund exists which is controlled by the contributors for a common purpose. The common fund is held by the trustee of the discretionary trust and effectuates the purpose of the contributing members (to manage the identified risks). Not undertaken for profit The principle of mutuality was recognised in early cases in the context of mutual insurance schemes. In New York Life Insurance Co v Styles only members of a life insurance company were the holders of participating policies, and each member was entitled to a share of the assets and liable to all losses. An account was taken each year, and a greater part of the surplus of premiums over expenditure referable to the policies was returnable to the policyholders as bonuses. The remainder was carried forward as funds in hand to the credit of the general body of members. The company recognised that income derived from investments, and from all transactions with persons who were not members, was assessable to income tax. However, as to the premium income received under participating policies, Lord Watson held: "The individuals insured and those associated for the purpose of receiving their dividends, and meeting policies when they fall in, are identical; and I do not think that their complete identity can be destroyed, or even impaired, by their incorporation. The corporation is merely a legal entity which represents the aggregate of its members; and the members of the appellant company are its participating policyholders. "When a number of individuals agree to contribute funds for a common purpose, such as the payment of annuities, or of capital sums, to some or all of them, on the occurrence of events certain or uncertain, and stipulate that their contributions, so far as not required for that purpose, shall be repaid to them, I cannot conceive why they should be regarded as traders, or why contributions returned to them should be regarded as profits. That consideration appears to me to dispose of the present case. In my opinion, a member of the appellant company, when he pays a premium, makes a rateable contribution to a common fund, in which he and his co-partners are jointly interested, and which is divisible among them, at times and under the conditions specified in their policies. He pays according to an estimate of the amount which will be required for the common benefit; if his contribution proves to be insufficient he must make good the deficiency; if it exceeds what is ultimately found to be requisite, the excess is returned to him." Lord Bramwell, also in the majority, posed the question: "Is it possible to say that this is an association for the purpose of profit, or that it has made any profit?" The same question was posed by Lord Herschell. It was not determinative that the surplus was called "profits" in the accounts - it was necessary to look to see if they were really so: "The members contribute for a common object to a fund which is their common property; it turns out that they have contributed more than is needed, and therefore more than ought to have been contributed by them, for this object, and accordingly their next contribution is reduced by an amount equal to their proportion of this excess. I am at a loss to see how this can be considered as a 'profit' arising or accruing to them from a trade or vocation which they carry on. It is true the alternative is allowed them of leaving the excess in the common fund, and so increasing their representatives' claim upon it in case of death, but I cannot think that this makes any difference." The courts have long recognised that a company can trade with its members. The Privy Council considered whether a company could derive a profit from its members in English and Scottish Joint Co-operative Wholesale Society Ltd v Assam Commissioner of Agricultural Income Tax [1948] 2 All ER 395 ( Assam Tea ). The following facts as described in the High Court judgment, from which the taxpayer appealed to the Privy Council, were accepted by Lord Normand at 397-398: ...the society is incorporated in the United Kingdom under the Industrial and Provident Societies Act, 1893. It has an unlimited capital divided into shares of £5 each... Its objects, as set out in its rules, inter alia , are: 'To carry on the business of planters, growers, producers, merchants and manufacturers and brokers of tea.' The society consists of two members, viz ., the Co-operative Wholesale Society, Ltd. and the Scottish Co-operative Wholesale Society, Ltd. The society owns the Deckiajuli estate where it grows and manufactures tea. Except a small portion of produce, which is unfit for export and which is sold locally, the whole of the society's output of tea is sold to its two members at market rates and is exported to England and Scotland. Each year the members of the society pay, by way of advances to the society, sums of money to meet the cost of tea supplied by the society to the members. The market prices of the tea, with which the members are supplied, are debited against these payments. The supplies are recorded as sales to the members. Out of the proceeds from the sales, the expenses of production and management and the interest on loans are paid or provided. By the rules of the society its net profits are applied ( a ) in depreciation of land... ( b ) payment of interest not exceeding 6 per cent. per annum on the share capital; ( c ) appropriation to a reserve fund; ( d ) appropriation to a special fund for making grants as determined in general meeting; ( e ) payment of a dividend to members rateable in proportion to the amount of purchases made by them from the society; and ( f ) the remainder, if any, carried forward to the next account. In considering whether or not the principle of mutuality applied in this case, the Privy Council concluded that profits were not only likely to arise from the sales of tea to members, but that the generation of profits was in fact contemplated by the rules that provided for their application (at 398). The court went on to say that it was difficult to distinguish the company, in its dealings with members, from an ordinary trading company (at 398): The application of net profits... is, in essentials, not different from the application of net profits which might be made by any trading company, and it need not result in the distribution of all profits among the members of the society. Thus, any net profits applied under heads ( a ), ( c ), ( d ) and ( f ) would be retained by the appellant society. When the constitution, rules and business practice of the appellant society so closely conform to the pattern of an ordinary profit-making concern, how can it plausibly be maintained that no profits can result? This case highlights three points of relevance to mutuality. Firstly, the entity's constituent documents, in contemplating that profits will be derived, are an indication that the company is trading. Secondly, when the business operations of the entity conform so closely to an ordinary profit-making business, it would also indicate that the entity is trading with its members. Thirdly, this case supports the proposition that just because an entity's dealings are with its members, it does not necessarily mean that the association's receipts arising from those dealings have a mutual character. In FC of T v Australian Music Traders Association (1990) 90 ATC 4536 ( Music Traders ) , the Full Federal Court considered whether fees paid by members of an association to a third party in return for exhibition space at a trade fair, which were then on-paid to the association constituted contributions to a common fund by the members and thus subject to the principle of mutuality, or were in the nature of profit derived in the course of trading. The Australian Music Traders Association was established for the promotion of the interests of people engaged in dealing in musical instruments, records and associated equipment; and the conduct of music trade fairs for the exhibition of goods dealt in by members and others. In the relevant income year, the Association engaged a third party company to organise a trade fair on its behalf. The company sold exhibition space to traders, some of whom were members of the association. Each trader that took exhibition space entered into a written agreement which set out the cost and size of the floor space to be taken. The agreement between the Association and the trade fair organiser entitled the Association to receive out of monies paid by member traders, an amount determined in accordance with a formula relating to floor space occupied. The resulting sum payable to the Association was the amount at issue; was it to be characterised as income, or was it subject to the principle of mutuality, and thus not income. The majority found that the receipts were not subject to the mutuality principle. Davies J, who was a member of the majority, quoted from the judgment of Lord Wilberforce in Fletcher v Income Tax Commissioner [1971] 3 All ER 1185 (Fletcher) at 1189 inposing the question to be answered: 'is the activity, on the one hand, a trade, or an adventure in the nature of trade, producing a profit, or is it, on the other, a mutual arrangement which, at most, gives rise to a surplus?'. Davies J concluded that the activity and the fee received in connection with the activity were not mutual in nature. He said at 4538-39: The fee paid by the organisers of the fair to the Association was not a fee payable by members of the Association into a common fund. And the fair, though it benefited members of the association, was not a mutual, non-profit activity. Its essence was that of trading for profit by individual traders, though through the medium of a common activity, the fair. Wilcox J, the other member of the majority, in concluding that the members were not making contributions to a common fund said at 4546: The point, of course, is that the decisions made by individual members as to the extent of their payments depended not upon any wish or need to make members' contributions to the Association but rather upon the display space which they wished to take. The decision in Royal Automobile Club of Victoria (RACV) v Federal Commissioner of Taxation 73 ATC 4153 considered a variety of services provided by RACV in the context of mutuality. In determining what constitutes a mutual and non-mutual dealing, Anderson J. in RACV stated (at 4157): I think what has to be done is to look to the realities of each of the activities in respect of which there is a dispute, and then to determine whether it or part of it partakes of the required quality of mutuality. Just as some of the activities of the one organisation may be mutual and some not, so also some dealings in relation to an activity may be mutual and some not... RACV stands as authority for the proposition that some dealings in relation to an activity may be mutual and some not and that non-mutual receipts may be severed from any mutual receipts and assessed accordingly. In North Ryde RSL Community Club Ltd. v FC of T 2002 ATC 4293 members paid subscriptions to the North Ryde club for the purposes of playing keno games. From analysis of the arrangement if was found that the members were not making payments as a subscription to North Ryde club but were subscribing to a game operated by a third party on the club's premises. Each time a member played a game they paid a subscription, individually, to the third party through an agency relationship that existed between the North Ryde club and the third party. It was held that the amounts paid by members to play the game were not the club's own money's on receipt and were not payments to the Club for the common purpose of the members. In addition the commissions paid to the club by the third party were not mutual receipts of the members. Where a service is provided to members by a third party a close analysis of the dealings between all parties is required to determine whether receipts can be characterised as mutual. Therefore, it is relevant to examine whether the contributions paid by the Members to the Trustee for Insurance Cover by a third party can be considered as a mutual receipt of the discretionary trust. The component of the contributions paid by Members for Insurance is used by the trustee to purchase insurance policies for the benefit of Members. While the Members are not a party to the contract of insurance each member is entitled to make an insurance claim with the insurer as a third party beneficiary. Further the Trustee has no discretion over the payment of any insurance claims. In effect the component of the contributions made by Members for the Insurance Cover is paid to procure third party insurance services for the Members, under a commercial arrangement between the Trustee and the Insurance Broker. The Members do not have any right to share in the any surplus created by that portion of the contribution. Further, that part of the contribution, paid to the Insurance Broker, is not a payment for a mutual service provided by the Trustee. Therefore, the member contributions related to the Insurance Cover are payments in respect of a trading activity, on commercial terms, with a third party and do not form part of the common fund and are not mutual receipts. In contrast discretionary protection is subject to the discretion of the Trustee and does not involve a third party. The contribution amount relating to discretionary protection is designed to ensure that the discretionary trust has sufficient funds to cover the costs of Member claims but any surplus is returned to Members. In respect of the discretionary protection the trust is not engaging in a profit making or commercial arrangement of providing services or insurance cover to Members. Identity between the contributors and the participants The principle of mutuality is dependent upon the existence of an 'identity' between contributors to the fund and those who are entitled to participate in it. The mutuality principle may be displaced where there is a difference of identity between those who contribute and those who can receive a distribution of surplus, or where the distribution of surplus is disproportionate to the amount contributed. In Coleambally , Beaumont, Merkel and Hely JJ said at 4842: The identity required is not an identity between individuals, but an identity between classes, and all that is required is a reasonable relationship between what a member contributes, and the member's expected participation in the common fund: Sydney Water Board Employees Credit Union (supra) at ATC 4135; CLR 457; Social Credit Savings & Loans Society Ltd (supra) at ATC 4238-4239; CLR 571-572. For the mutuality principle to apply, in one way or another ("in meal or in malt") the contributing members must be entitled to recoupment or refund of any surplus so that in the result the body corporate does not make a profit from them: Jones v South-West Lancashire Coal Owners Association Ltd [1927] AC 827 at 832. In Social Credit Savings & Loans Society Ltd (supra) at ATC 4240-4241; CLR 576, Gibbs J held that a power in the Society to apply the surplus in a fund in favour of employees of the Society was sufficient to negate the proposition that the fund "belonged" to the contributors. Furthermore, Beaumont, Merkel and Hely JJ said at 4844: ...if the amounts standing to the credit of the sinking fund truly 'belonged' to the contributors, with CIMCL no more than a convenient vehicle, the members would have a choice as to whether any surplus would come back to the members in the event of a winding up. The denial of that choice by CIMCL's constitution demonstrates that the amounts contributed to the sinking fund do not truly belong to the member contributors. When the members make, and CIMCL receives, a contribution, the contributing members have no right to participate in any surplus of the members' contributions over what may be expended in carrying out the common purpose. In order for mutuality to exist there must be a reasonable relationship between contributions made by members and what they can expect to benefit from the fund. The return of surplus to contributors need not occur on an annual or other scheduled basis, nor must the surplus be returned in any particular form. Even the application of contributions to build up reserves need not displace the presence of mutuality. What is required is that the collective entitlement must be returned sooner or later, in 'meal or in malt'. Members make contribution to the trust fund to manage risks they face in their operations. The contributions are paid for insurance cover and the payment of claims for discretionary protection. The members are the sole discretionary beneficiaries of the trust. The Trustee must apply the trust fund for its purpose of managing members' risks through the payment of insurance premiums to a third party, and payment of discretion protection claims of members. Any payment to members for discretionary protection is at the discretion of the Trustee. On the winding up of the discretionary trust, the contributions held by the trust will be returned to members following payment of expenses and liabilities of the trust. A reasonable relationship exists between the contributions made by members and their expected benefit from the common fund held by the Trustee. It is accepted that there is identity between the contributors (members) and participators (members) to the common fund held by the Trustee. | Detailed Reasoning - Conclusion - principle of mutuality: The principle of mutuality will apply to Member contributions, excluding the component relating to the purchase of Insurance Cover under a commercial arrangement with a third party insurer. These amounts are not assessable income to the Trustee of the discretionary under section 6-5 or 6-10 of the ITAA 1997. | Detailed Reasoning - Capital: The term 'income' is not defined in the Income Tax Assessment Act 1936 (ITAA 1936) or ITAA 1997. However extensive case law has established that it does not include a contribution of capital. In GP International Pipecoaters Pty Ltd v. Federal Commissioner of Taxation , the Full High Court stated, at 90 ATC 4420: To determine whether a receipt is of an income or of 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 or thing 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. Amounts that are periodical, regular or recurrent, relied upon by the recipient for their regular expenditure and paid to them for that purpose are likely to be ordinary income, as are amounts that are the product in a real sense of any business of, or services rendered by, the recipient. Ultimately, whether or not a particular receipt is ordinary income or capital depends on its character in the hands of the recipient. The whole of the circumstances must be considered and the motive of the payer may be relevant to this consideration. The contributions paid by the Members to the discretionary trust are capital if they form part of the corpus, or subject matter, of the trust and are not paid to the trust for provision of services by the trust or for purchase of insurance under a business arrangement conducted by the trust. Paragraph 10 of TR 2012/D2 Income tax: meaning of 'income of the trust estate' in Division 6 of Part III of the Income Tax Assessment Act 1936 and related provisions states: 'Income' and 'trust estate' are distinct concepts, income being the product of the trust estate. Therefore, an amount which forms part of the trust estate will not be treated as income of the trust. The contribution amount for each Member is based on the estimated costs of providing the Discretionary Protection and the Insurance Cover to the Members. The Trustee will hold the Trust Funds in an interest bearing account and the funds will be available to pay the Insurance Broker for the Insurance Cover and pay out claims of the Members. The Trust Fund is applied for the collective benefit of the Members by purchasing Insurance Cover and providing Discretionary protection for Member's risks. The terms of the Trust Deed and the subsequent obligation imposed on the trustee, indicate that the discretionary trust is not engaging in a profit making business of providing services or selling insurance cover to each Member. The relationship between the Members and the Trust is not based in contract, as would be the case in a business arrangement, but is a fiduciary relationship where the Trustee must consider the claims made by the Members. The contributions received by the discretionary trust form part of the trust estate and are not income of the trust estate. | Detailed Reasoning - Question 3: Section 6-5 of the ITAA 1997 provides that assessable income includes income according to ordinary concepts, which is called ordinary income. The characteristics of ordinary income that have evolved from case law include receipts that: · are earned; · are expected; · are relied upon; and · have an element of periodicity, recurrence or regularity. The receipt of interest is assessable income ( Case W40 89 ATC 399 at 403). The principle of mutuality does not apply to receipts derived from sources other than the contributors' to the common fund, such as interest or income from a business activity conducted by the members (see Revesby Credit Union at 575). As such, bank interest derived by the Trustee will be assessable income for the purposes of section 6-5 of the ITAA 1997. | Detailed Reasoning - Question 4: Section 95 of the ITAA 1936 provides the following meaning of net income: Net income, in relation to a trust estate, means the total assessable income of the trust estate calculated under this Act as if the trustee were a taxpayer in respect of that income and were a resident, less all allowable deductions,... Subsection 6(1) of the ITAA 1936 provides that 'allowable deduction' has the same meaning as 'deduction' in the ITAA 1997. Section 995-1 of the ITAA 1997 states that deduction means an amount you can deduct. 'Deduct' is defined in section 8-1 and 8-5 of the ITAA 1997. Section 8-1 of the ITAA 1997 allows a deduction for a loss or an outgoing to the extent to which it is incurred in gaining or producing assessable income, except where the loss or outgoing is of a capital, private or domestic nature. As such, expenses incurred in deriving bank interest (for example, bank fees) are allowable deductions for the purposes of the ITAA 1936. Mutual receipts are not assessable income. Therefore, costs incurred to get mutual receipts are not allowable deductions for the purposes of the ITAA 1936. As such, expenses relating to members contributions are not allowable deductions.