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Ruling

Subject: Assessability of gifts of money received by religious practitioners

Question

Are gifts of money you expect to receive assessable income?

Answer

Yes

This ruling applies for the following periods

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commences on

1 July 2011

Relevant facts and circumstances

You are religious practitioners.

You will both be studying full-time from 2012.

You both intend to return to ministry positions when you finish your studies.

During this time you expect to receive gifts of money to support yourselves.

A mentor has written to potential supporters asking for them to give donations to assist you financially while you have no other income.

You will follow up the email from your mentor with personal emails of your own.

You have set up a joint bank account to receive the gifts. A friend will have authority to operate the account and contributions into the account will be made anonymously.

You expect to receive some one-off donations as well as some regular payments.

You expect to receive gifts from people who know you and who have a close relationship with you, or have gratitude for your work with the congregations.

Relevant legislative provisions

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

Reasons for decision

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.

Ordinary income has generally been held to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business.

Relevant factors in determining whether a payment is ordinary income include:

§ whether the payment is the product of any employment, services rendered, or any business

§ whether the payment is expected and relied upon

§ the character of the payment in the hands of the recipient

§ whether the payment is received as a lump sum or periodically; and

§ the motive of the person making the payment, although this is rarely decisive by itself.

Taxation Ruling IT 2674 provides the Commissioner's view on whether gifts received by church workers (including missionaries and ministers of religion) are assessable income under the ITAA 1997.

The ruling provides that a gift received by a church worker is assessable income if it is 'income' in the ordinary sense of the word.

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

§ 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 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

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

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

The ruling provides that gifts are not assessable income when they are:

§ A personal gift received for personal reasons, without any connection with any income-producing activity on the part of the recipient

§ A gift or gratuity made only on grounds personal to the recipient

§ Referable exclusively to the attitude of the donor personally to the church worker personally

§ A voluntary payment received by a church worker from a family member, a friend or acquaintance, on grounds personal to the recipient, to assist his or her personal needs.

Gifts received from parents or other close relatives which are given out of natural love and affection will not be assessable. Similarly, gifts made purely as a mark of affection, esteem or respect will not be assessable.

Paragraph 14 of the ruling states that, "gifts are often made to church workers both as an expression of goodwill towards them personally and also as a reward for some income-producing activity of the church worker or in recognition of the church worker's calling or occupation. If a substantial reason - it does not have to be the dominant reason - a gift is received by a church worker is his or her occupation or some income-producing activity on his or her part, the gift is income, even though the gift is also received on personal grounds".

It appears that some of the money you will receive will be given for personal reasons as well as in relation to the church work you have done. However, it is considered that a substantial reason for the giving of the money is the work you have done within the church not for purely personal reasons.

The money you will receive has the characteristics of ordinary income because it relates directly to your employment and services rendered within the religious institution and to members of the congregation.

The money has been solicited from supporters who have gratitude for work you have done.

The money will replace one spouse's income whilst they are studying and it will be relied upon to support your family.

If you are able to show that a portion of the money is from family members or close friends and was given for purely personal reasons, then this money will not be assessable.

We consider that the money you will receive which relates directly to your employment and will replace the spouse's income will be assessable income.