Private ruling: Donations - mutuality principle
Date of advice: 1 May 2026
Published: 13 July 2026
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are donations received by the Entity from members or external donors assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: Background The Entity is a not-for-profit incorporated association that was established for a specific purpose. The Entity is governed by its constituent document. The constituent documents include non-profit and wind-up clauses. The Entity is not registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC). The Entities purpose includes receiving voluntary monetary donations from both members and non-members (Donors). Donors do not receive a material benefit in return for the donation provided, they are simply contributing to the association to pursue its purpose. Donations are not made in exchange for goods, services, or membership benefits. Donated funds are applied to the Entity's general purpose and activities. Donors include entities with no membership relationship with the Entity. Member and non-member donations are not separated into different categories. Donors do not control the use of donated funds and are not linked to any membership rights.

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 6-15 | Income Tax Assessment Act 1997 section 50-1 | Income Tax Assessment Act 1997 section 50-47 | Income Tax Assessment Act 1997 section 59-35

Reasons for decision: Summary: The donations received by the Entity, whether from members or non-members, are ordinary income assessable under section 6-5 of the ITAA 1997. The principle of mutuality does not apply to the Entity as the donations from members or non-members are contributing to a fund to pursue their political objectives. That is, the members and non-members of the Entity contribute to a fund which supports the activities of a group larger than themselves. Therefore, the arrangement lacks the required identity between those that contribute and those that are entitled to benefit. As the donations are not mutual receipts at common law, section 59-35 of the ITAA 1997 does not apply. Accordingly, the amounts are included in the assessable income of the Entity. | Detailed Reasoning - Assessable income: Section 6-5 of the ITAA 1997 includes in assessable income amounts that are ordinary income according to ordinary concepts. Whether a receipt constitutes ordinary income depends on its character in the hands of the recipient, having regard to the nature of the receipt and the circumstances in which it is received. Voluntary payments, including gifts and donations, may constitute ordinary income where they are received by an entity in the ordinary course of pursuing its objects. | Detailed Reasoning - Income Tax Exempt: Section 50-1 of the ITAA 1997 provides income tax exemptions for certain not-for-profit entities that meet specified categories and conditions. Political parties are not covered by any of the exemption categories in Subdivision 50-A of the ITAA 1997. Further, organisations with political or lobbying purposes cannot self-assess as income tax exempt under the not for profit (NFP) provisions administered by the ATO. | Detailed Reasoning - Principle of Mutuality: Section 6-15(3) of the ITAA 1997 states that if an amount is non-assessable non-exempt income, it is not assessable income. With reference to mutual receipts, section 59-35 of the ITAA 1997 states: An amount of ordinary income of an entity is not assessable income and not exempt income if: (a) the amount would be a mutual receipt, but for: (i) the entity's constituent document preventing the entity from making any distribution, whether in money, property or otherwise, to its members; or (ii) the entity's constituent document providing for the entity to issue MCIs (within the meaning of the Corporations Act 2001 ) or to pay * dividends in respect of MCIs; or (iii) the entity having issued one or more MCIs (within the meaning of the Corporations Act 2001) or having paid dividends in respect of one or more MCIs; and (b) apart from this section, the amount would be assessable income only because of section 6-5 of the ITAA 1997. | Detailed Reasoning - Common law of mutuality principles: Under the common-law principle of mutuality, an organisation cannot derive income from itself. For mutuality to apply, there must be a common fund created and controlled by contributors for a common purpose, and there must be complete identity between the contributors to the fund and the beneficiaries of any surplus, as a class. An organisation carried on pursuing objectives that benefit the broader community or a cause, rather than providing benefits to members as members, will generally not satisfy the requirements for mutuality. Whether a mutual association exists between persons depends upon the nature of their relationship, transactions and dealings. Case law demonstrates that no single criterion is likely to be decisive in determining if mutuality applies and not all factors will be present in all cases. Anderson J in Royal Automobile Club of Victoria (RACV) v. Federal Commissioner of Taxation 73 ATC 4153 (RACV) at 4157 (citing the view of Lord Wilberforce in Fletcher v. Income Tax Commissioner [1971] 3 All ER 1185 (Fletcher), at 1190) states: Many criteria have been considered in the numerous cases where one or another criterion has been regarded as determining the issue [of mutuality]. Lord Wilberforce expressed the opinion that, except in the simplest cases, no single criterion was likely to be decisive. By way of summary of the various legal principles established by case law surrounding the mutuality principle, the ATO's publication titled ' Mutuality and taxable income for not-for-profits ' guide on the ATO's website provides a summary of the typical characteristics of organisations that can access mutuality. The relevant content regarding membership in relation to application of the mutuality principle is discussed below. | Detailed Reasoning - Donations from members: In a mutual arrangement there must also be complete identity between contributors and participants as a class, not individually, in the surplus of the common funds. The members collectively contribute and collectively benefit from the common fund. For the purpose of mutuality, we accept that a person is a member of an organisation where the person has: • applied for membership (which may entail being nominated and paying the appropriate nomination fee); • been accepted by the organisation (for example by the Board of Directors); and • paid the appropriate membership subscription. Once a person has applied for membership and has been accepted by the organisation as a member, they are bound by the organisation's constitution and any rules or by-laws of the organisation. Members need not have voting rights, but those who do not must be eligible to the other rights and privileges of membership. This would include knowing that they are a member, receiving the appropriate membership identification (for example, a card or badge) and receiving the organisation's newsletters and publications. Various terms are used to describe members - for example, temporary, honorary, social and reciprocal members. As the meanings of these terms can differ between organisations, the use of a particular term does not determine whether a person is a member or non-member for tax purposes. The general principle is that temporary, honorary or social members who have not been through the above membership process are visitors for tax purposes. This also applies to reciprocal members - that is, members of another organisation sharing reciprocal arrangements. The mutuality principle was described succinctly 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. Overall, even where payments are made by members, not all receipts from members are mutual. A distinction is drawn between compulsory membership subscriptions or payments made in return for membership rights, which may be mutual, and voluntary payments such as donations, which are generally not mutual. | Detailed Reasoning - Donations from non-members: Receipts from non-members can never be mutual receipts. It is clear that amounts received from external parties who are not members fall outside the scope of mutuality and are assessable income | Detailed Reasoning - Section 59-35 ITAA 1997: Section 59-35 of the ITAA 1997 provides that an amount of ordinary income is non-assessable, non-exempt income where it would be a mutual receipt but for certain restrictions in the entity's constituent documents such as a prohibition on distributions to members. Section 59-35 of the ITAA 1997 does not create mutuality where it does not otherwise exist at common law. Its operation is limited to preserving the non-assessable character of receipts that are mutual in substance but would otherwise fail due to non-distribution clause or similar restrictions. | Detailed Reasoning - Application to your circumstances: Based on the information provided and having regard to ATO guidance on the principle of mutuality, the donations received by the Entity does not constitute mutual receipts as they are voluntary in nature. The essential character of the receipts is that of contributions made to advance their objectives, rather than payments forming part of a mutual arrangement between members of an association. While the entity is member based, the donations are not made in return for membership rights or benefits. All donations are applied to the entity's general funds to support its political objects. For the principle of mutuality to apply, there must be complete identity between the contributors to, and beneficiaries of, the common fund. In this case, the entity operates to advance political purposes for the broader community rather than for the benefit of members as members. As such, the necessary identity of contributors and beneficiaries is absent. The amounts cannot be apportioned as they are voluntary donations rather than compulsory member subscriptions. Accordingly, the donations received are ordinary income assessable under section 6-5 of the ITAA 1997. As the receipts are not mutual at common law, section 59-35 of the ITAA 1997 does not apply, and the amounts are not non-assessable non-exempt income.