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Tax Exempt Payments

A friend works for himself as a freelance Christian music producer
He receives gifts via a clearing house
His accountant wants to treat them all as taxable, but I saw the following in a magazine article and would welcome your views:

-donations from churches and groups which the worker has worked with – taxable
-gifts from organisations with which the worker has previously worked – probably taxable
-unsolicited gifts from family, friends and acquaintances where no services are rendered – not taxable
-unsolicited gifts from individuals of whom the worker has no prior knowledge including anonymous gifts of cash should not be taxed where there are no services rendered

Thanks
Stephen Burt

Replies

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01st Mar 2007 13:16

Thanks for the clarification
It is evident that your friend does not work with the clearing house and therefore, your magazine article would not regard the gifts as taxable.

From my point of view, as I said before, if the gifts are essentially charitable, they are not taxable and even if your friend reciprocates the charity by doing something for the donor, the lack of a link between the donation and the performance of the service also means that the donation is not taxable as your friend's business income.

Thanks (0)
By sburt
01st Mar 2007 12:12

response to comment
Sorry for lack of clarity I was trying to be too concise, I have copied your comments in and added some clarification below each question - thanks for looking at this


Struggling to understand
This is not an area of business that I have ever come across and I do not understand the terminology. Forgive me for asking, but if you could clarify the question, I and others might be able to give you a proper answer.
What is the relevance of "Christian" in this context? Does this alter the fact that your friend is a sole trader who is subject to income tax on his profits?
I guess not

What are the gifts? Money by way of charity to someone who does not earn enough to support himself (in which case he is unlikely to be paying tax, but they would not be taxable as income)
Yes - this is the thrust of it, although the level of support would be sufficient to pay tax

or a payment for performing a service of use to the donor or perhaps, goods that he can use for his business (in either of which cases, they would be taxable as income of his business)?
Some of the donors may make use of services provided (i.e. the beneficiary coming to lead a service at their church), but there is no link between the donation and any services performed

What is a "clearing house"? How does it affect the issue?
Operates as a go between so that tax can be reclaimed on donations, also enables anonymous donations to the beneficiary

Apart from that, I would agree with Jessica that your magazine article sounds about right, except that the last two options do not seem to apply as a "clearing house" does not sound as if it is an individual person.

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01st Mar 2007 11:01

Struggling to understand
This is not an area of business that I have ever come across and I do not understand the terminology. Forgive me for asking, but if you could clarify the question, I and others might be able to give you a proper answer.

What is the relevance of "Christian" in this context? Does this alter the fact that your friend is a sole trader who is subject to income tax on his profits?

What are the gifts? Money by way of charity to someone who does not earn enough to support himself (in which case he is unlikely to be paying tax, but they would not be taxable as income) or a payment for performing a service of use to the donor or perhaps, goods that he can use for his business (in either of which cases, they would be taxable as income of his business)?

What is a "clearing house"? How does it affect the issue?

Apart from that, I would agree with Jessica that your magazine article sounds about right, except that the last two options do not seem to apply as a "clearing house" does not sound as if it is an individual person.

Thanks (0)