Why are amounts received from begging not income for tax purposes but are income for the purposes of income testing welfare benefits?
On 20th February 2017, Frank Lovich was convicted of fraud for begging while receiving a benefit. Among other charges, Mr Lovich was convicted under section 15 of the Summary Offences Act 1981. Under this legislation, a person is ‘liable to imprisonment for a term not exceeding 3 months or a fine not exceeding $1,000 who solicits, gathers, or collects alms, subscriptions, or contributions by means of any false pretence’.
While the Police have indicated they are not going to commence prosecution proceedings against all welfare recipients who may engage in begging activity, an important question arises from this situation: Are we, yet again, treating people on welfare differently from other people in society?
The particular issue in this situation is the treatment of Mr Lovich’s funds received from begging and the extent to which Mr Lovich’s funds are income for the purposes of income-testing for welfare purposes, but are unlikely to be considered income from a taxpaying perspective.
Without getting into too many technicalities of what is ‘income’ for tax purposes – there is one particular part of the Income Tax Act 2007 that is likely to apply to Mr Lovich’s situation. This is intriguingly called ‘income under ordinary concepts’: ‘an amount is also income of a person if it is their income under ordinary concepts’ (section CA 1(2)).
As this is sufficiently vague as to require further interpretation, reference to common law is sought for elaboration. Common law has three primary criteria that can help to establish whether a particular receipt is income in nature. These are:
- Whether the amount ‘comes in’
- Whether the amount is regular
- The ‘quality in the hands of the recipient’
The first criteria is clearly met – the funds ‘come in’. They represent ‘money or money’s worth’ to the recipient. The second criteria is not met – the amounts are not received regularly or periodically. But, what about the third criteria, the ‘quality in the hands of the recipient’? This means what does the payment mean to the recipient – rather than what it means to the giver. As this discussion applies to funds that are solicited from strangers by people in public spaces (and does not include street performers or other activities where some form of entertainment is provided by the individual seeking funding) this is not a reciprocal transaction. No good or service is provided in return for the funds given. The amount has the characteristics of a gift, which would not be taxable in New Zealand.
How is this different from receipt of welfare assistance? Qualification for most welfare support in New Zealand has a range of conditions. For example, qualification for many allowances requires a person to have no income or an income less than the amount that would fully abate the benefit. For the purposes of the Social Security Act 1964, ‘income’ in relation to any person means ‘any money received or the value in money’s worth of any interest acquired, before income tax, by the person … from any source for income-related purposes and used by the person for income-related purposes’. The definition also includes ‘the value of any goods, services, transport, or accommodation supplied on a regular basis to the person by any other person’. Thus, income for welfare assistance purposes is considerably broader than income for tax purposes and amounts received from begging are likely to fall within the criteria of income for welfare purposes.
It is well established that people receiving welfare benefits can expect to be treated differently from other ‘types’ of people, across a range of activities – whether or not they involve crime. This is yet another example. If an amount is sufficiently remote from an individual that it is not considered taxable income, why is it considered income for the purposes of income-testing for welfare?
Perhaps reference to the narratives around those on welfare can provide some insight into this situation. It is not unusual to see those on welfare described as ‘scroungers or cheats’; ‘parasites demanding social security while making no contribution to the economy’ or ‘wilfully idle, undeserving and lacking in moral fibre’ (these are all quotes from academic studies). Indeed we devote entire ‘documentary’ series to observation of the lives of those who live on welfare support. In a society that venerates self-sufficiency and independence, individuals who are reliant on welfare retain an undesirable position in a society, regardless of the events that have placed them in this position. The situation described above reinforces this image and suggests that it is preferable to be begging on the street (and receiving non-taxable income) than receiving welfare assistance.
Lisa Marriott is an Associate Professor of Taxation in the School of Accounting and Commercial Law, Victoria University of Wellington, New Zealand.Share This: