Edited version of private ruling

Authorisation Number: 1011661355247

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Ruling

Subject: Income - Church worker

Question 1

Are you assessable on money received from international church sponsors?

Answer: Yes.

Question 2

Are you assessable on allowances and any monthly financial contributions you receive from church members?

Answer: Yes.

This ruling applies for the following periods:

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commences on:

1 July 2008

Relevant facts and circumstances

You arrived in Australia in 2009 on a temporary visa. Your first visa was for two years and now you have been nominated for another two years.

Your family accompanied you.

You rented an apartment.

You have an Australian bank account.

You have an overseas bank account.

You have no permanent address outside of Australia.

You are a member of a religious group.

The purpose of your visit is to carry out religious work.

You receive financial contributions from overseas sponsors.

Part of the income you received from overseas is deposited in your overseas bank account.

In Australia you are sponsored by a local church affiliated with your religious group. The members of the church supply you with a monthly financial contribution to offset some of your living expenses.

There is an expectation that they will eventually supply you with a monthly contribution for the religious work you do.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Subsection 6-5(2)

Income Tax Assessment Act 1997 Section 768-910

Income Tax Assessment Act 1997 Subsection 995-1(1)

Reasons for decision

Summary

The payments you receive are considered to be assessable income in your hands as it is possible to relate the funds to income-producing activities on your part. The payments should be included in your yearly tax return.

Detailed Reasoning

Residency

Residency is a central concept in taxation. It determines what income you need to declare in your tax return. It also determines what tax rates apply to your taxable income to determine how much tax you need to pay.

The terms 'resident' and 'resident of Australia', in regard to an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 1936. The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. These tests are:

1. The resides test

2. The domicile test

3. The 183 day test

4. The superannuation test.

The primary test for deciding the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word resides. If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established.

Taxation Ruling TR 98/17 considers the residency status of individuals entering Australia and states that the period of physical presence or length of time in Australia is not, by itself, decisive when determining whether an individual resides here. However, an individuals behaviour over the time spent in Australia may reflect a degree of continuity, routine or habit that is consistent with residing here.

In your case, it is considered that you are an Australian resident for tax purposes under 'the resides test' for the following reasons:

· you came to Australia on a two year visa which you intend on extending

· your family accompanied you

· you are currently leasing a property in Australia

· you have a bank account in Australia

· you have no permanent address outside of Australia.

Based on the above facts it is considered that you are an Australian resident for taxation purposes from the date of your arrival in Australia as your behaviour in Australia reflects a degree of continuity, routine or habit that is consistent with residing here.

Temporary resident

Where certain conditions are met, a resident of Australia for tax purposes may also be considered to be a temporary resident for tax purposes.

Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer is a temporary resident if:

(a) they hold a temporary visa granted under the Migration Act 1958

(b) they are not an Australian resident within the meaning of the Social Security Act 1991, and

(c) their spouse is not an Australian resident within the meaning of the Social Security Act 1991.

Under the Social Security Act 1991, an Australian resident is a person who resides in Australia and is either an Australian citizen or holds a permanent resident visa.

In your case, you hold a temporary resident visa granted under the Migration Act 1958 and neither you nor your spouse are Australian residents within the meaning of the Social Security Act 1991. You are therefore considered to be a temporary resident.

Assessability of income

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia.

Taxation Ruling IT 2674 provides the Commissioner's view regarding the assessability of gifts to missionaries, ministers of religion and other church workers. The principles are no different from those which apply in determining whether gifts received in other callings or occupations are assessable income. IT 2674 provides that whether a gift is assessable income depends on the quality of the character of the gift in the hands of the recipient and whether the gift constitutes ordinary income.

Paragraph 12 of IT 2674 states that a voluntary payment or gift paid to a church worker is assessable income if it is possible to:

1.) relate the receipt of the gift by the church worker to any income-producing activity on his or her part; or

2.) point to any employment, personal exertion or other income-earning activity by the church worker of which the receipt of the gift is in a relevant sense a product or incident.

IT 2674 goes on to explain that a gift received in these circumstances is assessable income even if:

· the donor is not legally obliged to make the gift; or

· gift is made by a family member, friend or fellow worker; or

· if the church worker is an employee, the gift comes not from the employer but from somebody else; or

· the gift is made so that the church worker can acquire a capital asset; or

· the gift is received in kind rather than in money; or

· the church worker is not in any way motivated by the prospect of receiving the gift but is motivated only by a genuine commitment to religious beliefs.

Where a gift is made both as an expression of goodwill towards the church worker and also as a reward for some income-producing activity or in recognition of the worker's calling or occupation, the gift is assessable income where the occupation or income-producing activity is a substantial reason for the payment of the donation.

Conversely, where the income-producing activity is merely an insubstantial factor in the making of the gift, and the gift is made on personal grounds, the gift is not assessable income. For example, a donation is not assessable income if it is solely referable to the worker's personal qualities or attributes without any connection with any income-producing activity or work done by the taxpayer.

In determining whether the payments are income, we therefore need to consider the nature of the payments in the hands of the recipient.

In your case, you are a religious worker sponsored by a local church. The members of the church give you a monthly financial contribution to offset some of your living expenses and intend on giving you a monthly contribution for the ministry work you do some time in the future. You also receive payments from international sponsors.

The work you do in association with your religious group is a substantial reason for you receiving the financial contributions. The payments are received in your capacities within the organisation.

Although the gifts are voluntary and are not solicited, the payments can still be considered to be income in your hands as:

· a substantial reason for the payments are in recognition of the work carried out by you, and

· the payments are intended as a supplement to your income. Thus, the gift is related to your personal exertion.

Foreign source income exemption for temporary residents

Subdivision 768-R of the ITAA 1997 provides for an exemption from income tax in Australia from 1 July 2006 for most foreign income derived by residents of Australia who also qualify as temporary residents.

In particular, section 768-910 of the ITAA 1997 provides that ordinary income derived from a foreign source - excluding employment related income and capital gains on shares and rights acquired under employee share schemes - is exempt from income tax in Australia when derived by a temporary resident of Australia.

Income is derived generally from the location in which the services were performed (FCT v Efstathakis 79 ATC 4256 and C of T NSW v Cam and Sons Ltd (1936) 36 SR NSW).

You receive funds from a local church in Australia. These funds are clearly derived in Australia and therefore assessable.

You also receive funds from overseas sources. These funds are provided to assist you in carrying out your religious work in Australia. These funds are also considered to be derived from Australia as this is the location where you perform your religious work.

Therefore the income received in relation to your religious work carried out in Australia, whether received from an overseas source or within Australia, is assessable in Australia.