Private ruling: Election expenses / Donations made to candidates
Published: April 2014
Ruling period: 1 July 2013 to 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are the candidates required to declare donations given expressly for election expenses as personal income? | A1: Yes | Q2: Are the candidates required to declare any reimbursement of election expenses as income if they have been claimed them as deductions? | A2: Yes | Q3: May the candidates claim any non-reimbursed election expenses as personal deductions? | A3: Yes Issue 2 Donations made to candidates | Q4: If two candidates form a group (not a political party) may donors claim a deduction on their individual tax return (subject to the published limits and conditions) if they donate to the group, or must an individual candidate be named? | A4: An independent candidate must be named.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The organisation is an incorporated not for profit association supporting two candidates for a Legislative Council Election.

Relevant legislative provisions: Income Tax Assessment Act 1997 (ITAA 1997) | Income Tax Assessment Act 1936 (ITAA 1936)

Reasons for decision: Detailed Reasoning - Question 1: Are the candidates required to declare donations given expressly for election expenses as personal income? | Detailed Reasoning - Detailed reasoning: Where a deduction has been allowed or is allowable in respect of expenditure and the taxpayer receives a reimbursement of any part of the expenditure, the amount reimbursed must be included in assessable income. This could happen where the candidate is reimbursed for expenses or has expenses paid by a political party. Any public funding received directly by the candidate also falls into this category. An amount that is received as a recoupment of a loss or outgoing (other than by way of insurance or indemnity) is an assessable recoupment if the loss or outgoing is deductible under a provision of the Income Tax Assessment Act 1997 (ITAA 1997) or the Income Tax Assessment Act 1936 (ITAA 1936). | Summary: As deductions are allowable, or would be allowable, to the candidates in respect of expenses relating to any payments received, the payments received will be an assessable recoupment and therefore amounts should be included in assessable income under Subdivision 20-A of the ITAA 1997. | Detailed Reasoning - Question 2: Are the candidates required to declare any reimbursement of election expenses as income if they have been claimed them as deductions? | Detailed Reasoning - Detailed reasoning: Subdivision 20-A of the ITAA 1997 operates to include in assessable income amounts received as recoupments of specified losses or outgoings allowed or allowable as deductions. As the lump sum amount is not being made by way of insurance or indemnity, the relevant provision is subsection 20-20(3) of the ITAA 1997. This section provides that an amount is an assessable recoupment of a loss or outgoing if a taxpayer: n receives the amount (except by way of insurance or indemnity); and n can deduct an amount for the loss or outgoing in the current year or has deducted or can deduct an amount for it in an earlier year under a provision listed in the tables at section 20-30 of the ITAA 1997. | Summary: As deductions are allowable or would be allowable to the candidates in respect of any donations received, the amounts received will be an assessable recoupment and therefore amounts will be included in assessable income under Subdivision 20-A of the ITAA 1997. | Detailed Reasoning - Question 3: May the candidates claim any non-reimbursed election expenses as personal deductions? | Detailed Reasoning - Detailed reasoning: Section 25-60 of the Income Tax Assessment Act 1997 (ITAA 1997) allows you to deduct expenditure you incur in contesting an election for the parliament of the Commonwealth, or the Parliament of any State or Territory. However, entertainment expenses are not deductible. Further, any amount received as recoupment of election expenses may be assessable under Subdivision 20-A of the ITAA 1997. As expenditure incurred in contesting a parliamentary election is deductible under s 25-60 of the ITAA 1997, it does not matter whether the candidate is successful in being elected, ie an unsuccessful candidate can also claim a deduction. The expenditure must, however, be incurred on the election process itself. In Flegg v FC of T 2007 ATC 2201, a member of the Queensland Parliament failed to obtain a deduction for legal expenses incurred in connection with a challenge to his pre-selection as his party's candidate for election. The AAT found that the relevant legal expenses were concerned with matters internal to the political party, not the actual election process. In accordance with general principles, an amount is deductible under s 25-60 of the ITAA in the income year in which it is incurred. Unlike the general deduction provisions of s 8-1 of the ITAA 1997, the election expense provisions do not specifically deny deductibility on the basis that the outgoings are of a capital, private or domestic nature. However, for a deduction to be allowable the expenditure must be "incurred in contesting an election" and it must be of a type that a member would incur to further his or her chances of being elected to a parliament. | Summary: Candidates for election in Federal, State and local government elections are required to substantiate all expenses incurred. If you have incurred expenses in the course of conducting your campaign, your election expenses are allowable deductions under section 25-60 of the ITAA 1997 if you are able to substantiate the expenses. | Detailed Reasoning - Question 1: If two candidates form a group (not a political party) may donors claim a deduction on their individual tax return (subject to the published limits and conditions) if they donate to the group, or must an individual candidate be named? | Detailed Reasoning - Detailed reasoning: Political parties are not deductible gift recipients (DGRs). However, contributions and gifts to political parties and independent candidates and members may be claimed as income tax deductions. For contributions and gifts made on or after 1 July 2008 to be deductible, the recipient must be a political party registered under Part XI of the Commonwealth Electoral Act 1918 or under corresponding state or territory legislation, or an individual who is or was an independent member of, or who is an independent candidate for, the Commonwealth Parliament, a state parliament, the Legislative Assembly of the Northern Territory or the Legislative Assembly for the Australian Capital Territory. The gift must be made by an individual in their personal capacity, or an employee or office holder of the donor, and the contribution or gift must be $2 or more. Contributions or gifts made to an independent candidate in an election must be made in the period from the time the candidates for the election are officially declared or announced until the candidate's intention to no longer be a candidate has been made public, or the result of the election is officially declared or announced. In the rare situation of an election wholly failing, the latter date changes to when the candidates are officially declared or announced for the replacement election. This only applies until the candidates for the resulting election are officially declared or announced. Testamentary contributions and gifts, that is, those made under a will, are not deductible. A tax deduction for a contribution or gift is claimed in the tax return for the income year in which the contribution or gift is made. The most that contributors or donors can claim in an income year is $1,500 for contributions and gifts to political parties, and $1,500 for contributions and gifts to independent candidates and members. | Summary: You have stated in your facts that your candidates have not formed a political party registered under Part XI of the Commonwealth Electoral Act 1918 or under corresponding state or territory legislation. They are therefore considered to be independent candidates and the receipts for donations should be made out in the name of the independent candidate.