Edited version of your written advice

Authorisation Number: 1012707220484

Ruling

Subject: Crowd funding

Question 1

Will the money received from your crowd funding campaign be assessable income?

Answer

No

This ruling applies for the following period

Income year ended 30 June 2015

The scheme commences on

1 July 2014

Relevant facts and circumstances

You are a university student.

You receive a government allowance.

You are hoping to receive a scholarship from a foundation.

You are not employed or carrying on a business.

You are seeking funds to create and run a website to gather data.

You will use the data for a research project.

You are hoping to raise $x through your crowd funding campaign.

You do not expect to make a profit.

All funds received will be used to create and run the website.

The foundation and the university will not be contributing to your campaign.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer's assessable income includes 'income according to ordinary concepts, which is called ordinary income'. However, 'ordinary income' is not defined in the legislation. It is therefore necessary to look to the courts for guidance on what constitutes 'ordinary income'.

In determining whether an amount is ordinary income, the courts have established the following principles:

• what receipts ought to be treated as income must be determined in accordance with ordinary concepts and usages of mankind, except in so far as a statute dictates otherwise

• whether the payment received is income depends upon a close examination of all relevant circumstances, and

• whether the payment received is income is an objective test.

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.

The characterisation of funds an entity receives through crowd funding will depend on the circumstances of each case. It is the perspective of the recipient of the crowd funding monies that matters in analysing the tax issues related to crowd funding.

Generally speaking, gifts do not constitute income according to ordinary concepts. This is provided that such a gift was freely bestowed and was not given for the provision of goods or services. Whether a gift constitutes ordinary income depends on the quality or character of the gift in the hands of the recipient. If the gift is received because of, in respect of, for, or in relation to any income-producing activity of the taxpayer, the gift is generally assessable income. The motive of the donor, recurrence of payments and use of payment by the recipient are also relevant factors in determining whether a payment will be treated as a gift or as ordinary income.

Funds received through crowd funding may be considered gifts in certain circumstances. For example, contributions which are motivated by the contributor's interest for that project, and where no goods or services are given to the contributor as a reward for their contribution, may be classified as a gift. Whether crowd funding contributions will be classified as gifts will depend entirely on the facts specific to each project.

Application to your circumstances

We consider that any money raised through your crowd funding campaign will not have the characteristics of ordinary income on the basis that:

• The reasons and motivation for embarking on the crowd funding campaign is to raise money to fund a website that will be used to obtain data from the public. You will then use this data in relation to your university studies, and in particular, your thesis. You will not earn any income from the website and any data gathered through the website will be made available to the public (and the foundation) for free.

• You have applied for a scholarship at the foundation. While the proposed website may help your chances of obtaining this scholarship, you are not guaranteed a scholarship from the foundation. Therefore, it is considered that there is not a sufficient connection between your crowd funding activities and the foundation scholarship.

• The crowd funding campaign is not related to any business-like activity you carry on.

• Any money raised through the crowd funding campaign will be used to meet the expenses of creating and running the website. No profit will be made by you or anyone else. That being the case, it cannot be said that the crowd funding receipts will be relied upon or expected by you to meet living or personal expenses.

• You will not be providing any services or products to your crowd funding contributors. Therefore, any money raised through your crowd funding campaign will not constitute a payment for services.

• Contributors will not receive any material benefit for their contributions to your crowd funding campaign. Therefore, contributions may be motivated by the contributor's interest in the subject matter or the foundation or both. Such contributions have the characteristics of a genuine gift or donation (non-deductible) with no services given in return for their contribution.

In this case, it is considered the contributions to your crowd funding campaign are better described as a gift and therefore do not constitute ordinary income in your hands. Therefore, any money raised through your crowd funding campaign to fund the creation of a website to collect data for your thesis will not be assessable income.