Edited version of private ruling

Authorisation Number: 1011872467674

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Ruling

Subject: Assessability of gifts and donations

Question

Do the donations you receive, on a regular or one-off basis, form part of your assessable income?

Answer

Yes

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

You purchased a residential building using borrowed funds.

Currently the rooms are rented to practitioners offering services and as residential accommodation.

The rents charged to the tenants are market-rate.

On your website you have requested weekly contributions to help make your loan repayments.

People across Australia have made donations to you. Some donations are one-off lump sums and others are a set amount paid on a weekly basis.

The donors are not related to you, your company officers or your shareholders. They do not receive any benefits in return for the donations. You do not keep records of who contributes or the amount they contribute.

Relevant legislative provisions

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

Reasons for decision

Summary

The donations you receive will form part of your assessable income as they relate to your business activities.

Detailed reasoning

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

Taxation Ruling IT 2674 outlines the general principles of whether a gift can be assessable income. Whilst the ruling specifically discusses the assessability of gifts made to missionaries, ministers of religion and other church workers, the principles can be applied to all recipients of gifts or donations. The ruling states:

Whether a gift is assessable income depends on the quality or the character of the gift in the hands of the recipient. Consideration is necessary of the whole of the circumstances in which the gift is received. For example, the following factors need to be taken into account:

(a) how, in what capacity, and for what reason the recipient received the gift; and

(b) whether the gift is of a kind which is a common incident of the recipient's calling or occupation; and

(c) whether the gift is made voluntarily; and

(d) whether the gift is solicited; and

(e) if the gift can be traced to gratitude engendered by some service rendered by the recipient to the donor, whether the recipient had already been remunerated fully for that service; and

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

(g) whether the recipient relies on the gift for regular maintenance of himself or herself and any dependants.

Taxation Determination TD 2006/22 considers whether a payment will be assessable income. In the explanation it states that:

The receipt of money or other property by way of simple gift and nothing more is not a receipt of income. A receipt of a voluntary payment of money or a voluntary transfer of property is prima facie not income in the hands of the recipient. If nothing more appears than the receipt of some money or property, what is received is capital and is not income. On the other hand, if the fact surrounding the transaction show that the payment or transfer was made without legal obligation, but is nevertheless so related to a recipient's employment, or to services rendered, or to a business carried on, that it is, in substance and in reality, not a mere gift but the product of an income earning activity, it is regarded as assessable income of the recipient.

You are a company which receives donations in relation to your business activities. These donations are used to assist with the repayment of the loan used to purchase the building from which your business operates.

Whilst nothing is given in return for the donations you only receive them as you are operating a business to provide rooms for practitioners. It is considered that the donations relate to your business activities as you would not receive them otherwise.

As the donations relate to your business activities, they will form part of your assessable income for taxation purposes. This is the case for all donations received regardless of whether they are one-off lump sum amounts or regular contributions.