Edited version of private advice

Authorisation Number: 1051844123703

Date of advice: 27 May 2021

Ruling

Subject: Income tax - assessable income

Question

Are the donations and bequests you receive assessable income?

Answer

No

This ruling applies for the following period periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were established by your Founder for the purpose of providing money, property or benefits to your beneficiaries in support of your objectives.

Your Trust Deed states your objects.

You collect donations and bequests in support of your objects.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-1

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-10

Reasons for decision

The donations and bequests you receive are a gift and will not form part of your assessable income.

Detailed reasoning

All references made in these reasons for decision are to the Income Tax Assessment Act 1997 (ITAA 1997), unless otherwise stated.

1. Assessable income is defined in subsection 6-1(1) as consisting of ordinary income and statutory income.

2. Section 6-5 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.

3. Section 6-10 defines statutory income as amounts that are not ordinary income but are included by some provisions of the ITAA 1997.

4. 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.

5. 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.

6. To determine whether a donation or bequest is assessable as ordinary income, it is necessary to establish whether it is a gift, and what the character of the gift is in the hands of the recipient.

7. The term 'gift' is not defined in the ITAA 1997. For the purposes of Division 30 that sets out the rules for working out deductions for certain gifts or contributions, the word 'gift' has its ordinary meaning.

8. Taxation Ruling TR 2005/13 Income tax: tax deductible gifts - what is a gift provides principles relevant to the determination of whether a transfer of money or property constitutes a gift.

9. TR 2005/13 at paragraph 13 explains the courts have described a gift as having the following characteristics and features:

- there is a transfer of the beneficial interest in property

- the transfer is made voluntarily

- the transfer arises by way of benefaction, and

- no material benefit or advantage is received by the giver by way of return.

10. Generally, a gift is regarded as a personal windfall gain and not as ordinary income unless the taxpayer has received the gift because of, in respect of, or in relation to any income-producing activity of the taxpayer.

11. Taxation Ruling IT 2674 Income tax: gifts to missionaries, ministers of religion and other church workers - are the gifts income? provides guidelines for determining whether gifts received by church workers (including missionaries and ministers of religion) are assessable income.

12. While you are not a church worker, the principles contained within the ruling can be applied to you.

13. Whether gifts received by you from donations and bequests are assessable income depends on the scope of the transaction by reason of which the money or property was received and your purpose in requesting the gifts.

14. IT 2674 at paragraph 11 explains that the following factors need to be taken into account in determining if a gift is assessable income:

- how, in what capacity and for what reason the recipient received the gift

- whether the gift is of a kind which is a common incident of the recipient's calling or occupation

- whether the gift is made voluntarily

- whether the gift is solicited

- if the gift can be traded to gratitude engendered by some service rendered by the recipient to the donor, whether the recipient had already been remunerated fully for the service

- the motive of the donor (but it is seldom, if ever, decisive), and

- whether the recipient relies on the gift for regular maintenance of himself or herself and any dependents.

15. In order to characterise the donations and bequests as business receipts there must be a service provided by you or a fulfilment of a contract obligation by you for its donors and testator.

16. These attributes are not apparent in the manner and purpose in which the donation and bequests are received and used.

17. The donations and bequests you receive in the circumstances outlined in this ruling are gifts and therefore they are not included in your assessable income.

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