The following receipts are not assessable income for tax purposes:
- mutual receipts
- receipts classified under income tax law as non-assessable income, including exempt income and non-assessable, non-exempt income.
Mutual receipts
Receipts derived from mutual dealings with members of your organisation are called mutual receipts.
There is a misconception held by some that mutual receipts are exempt income. Mutual receipts are not exempt income.
For NFP organisations that are:
- not-for-profit companies – the income tax law classifies mutual receipts as non-assessable, non-exempt income.
- other taxable companies – case law has established that mutual receipts are not 'income'. To be 'exempt income' under the income tax law, an amount must first be considered income. If an amount is not income in the first place, it cannot be exempt income.
The result of this is that mutual receipts are not subject to income tax because they are not assessable income – not because they are exempt income.
Mutual receipts include:
- member subscriptions and levies
- fees from members using the organisation's facilities (for example, gyms, pools and squash courts)
- drinks and food sold by the organisation to members
- amounts members pay to attend dinners, parties, dances or social functions arranged by the organisation
- amounts members pay to attend a talk, workshop or presentation arranged by the organisation
- the sale of items, such as souvenirs, to members.
Example: Non-assessable – revenue from mutual arrangement
A NFP club arranges for clothing to be made to its own design once or twice a year. The clothing is sold to the members. Not all members choose to purchase the clothing. Sales are put into the club's general funds, which are used to pay operating costs.
The sale of the clothing to members is a mutual arrangement so the proceeds do not form part of the assessable income of the club. The fact that not all members purchase the clothing is not crucial to the mutuality principle.
End of exampleIn the event an organisation sells items to members at a profit, the revenue would also be classified as mutual receipts.
Revenue classified as non-assessable under tax law
Income tax law classifies the following revenue as non-assessable – any amount that is:
- not ordinary income (income other than from rendering personal services, from property and from carrying on trading activities)
- not an amount specified under income tax law as income.
Example: Non-assessable – donations
A NFP society receives donations from both members and non-members.
The donations are non-assessable income regardless of who makes them. Donations are given voluntarily and are not income from rendering personal services, income from property or income from the carrying on of trading activities. Donations are also not specified as income under income tax law.
End of exampleNon-assessable income also includes an amount specified under income tax law as:
- non-assessable, non-exempt income (for example, mutual receipts of not-for-profit companies)
- exempt income (for example, the annual total of $300 or less of non-cash benefits – property or services – received in payment for goods and services provided by the organisation).
Example: Exempt – non-cash benefits – annual total of $300
A non-member hires a NFP club's function room for $300 and pays the club by giving it office equipment worth $300. This was the only non-cash benefit the club received for the income year.
As the annual total of non-cash benefits the club received for the year was $300, this revenue is exempt income.
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