Edited version of private ruling

Authorisation Number: 1011831163859

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Ruling

Subject Issuing receipts for gifts pursuant to sub section 30-228(1)

Question

Can the entity issue receipts for gifts pursuant to sub section 30-228(1) of the Income Tax Assessment Act 1997 (ITAA 1997) for donations in the form of non-cash payments?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commences on:

01 July 2010

Relevant facts and circumstances

The entity is a charitable organisation and has requested a private ruling regarding its ability to issue a receipt under sub section 30-228(1) of the Income Tax Assessment Act 1997 (ITAA 1997) for the non-cash payments made by members of specified service provider.

The entity is a member of the service provider.

Members of the provider donate non-cash payments to the entity which then uses the non-cash payments to obtain goods and services from other members for use in its programs or facilities.

Relevant legislative provisions

Income Tax Assessment Act 1997 sub section 30-228(1)

Reasons for decision

Detailed reasoning

Sub section 30-228(1) of the ITAA 1997 states that if a charitable organisation (DGR) issues a receipt for a gift, the receipt must state the name and ABN of the charitable organisation and the fact that the receipt is for a gift.

For the purposes of Division 30 of the ITAA 1997, the word 'gift' is not defined in the ITAA 1997. The word 'gift' has its ordinary meaning and its definition is discussed in case law and in Taxation Ruling TR 2005/13 Income tax: tax deductible gifts - what is a gift.

For a transfer of money or property to be characterised as a gift, it should arise from benefaction and proceed from detached and disinterested generosity. This view was propounded by Owen J. in Federal Commissioner of Taxation v. McPhail (1968) 117 CLR 111 41 ALJR 346:

…its is, I think, clear that to constitute a "gift", it must appear that the property transferred was transferred voluntarily and not as the result of a contractual obligation to transfer it and that no advantage of a material character was received by the transferor by way of return.

In Klopper & Anor v. FC of T 97 ATC 4179, at 4184, Nicholson J also stated the following:

…a payment can only be characterised as a gift when there is the element of voluntariness and the absence of consideration: that is, where there is truly a notion of benefaction so there is no advantage of a material character being received in return.

Paragraph 13 of the TR 2005/13 identifies the characteristics and features which the courts have used to describe a gift:

· there is a transfer of the beneficial interest in property;

· the transfer is made voluntarily;

· the transfer arises by way of benefaction; and

· no material benefit or advantage is received by the giver by way of return.

Transfer of beneficial interest in property

The making of a gift to a DGR involves the transfer of a beneficial interest in property to that DGR. For there to be a transfer, the property which belonged to the giver must become the property of the DGR. It is a requirement that identifiable property has in fact been transferred to the DGR. For a gift to be valid and effectual, the giver must have done everything that is necessary, in accordance with the relevant laws governing the transfer of that kind of property, to transfer ownership to the DGR.

In order to determine whether there is a transfer of a beneficial interest in property, it is necessary to determine whether the transfer involves property.

As stated on page 88 of the GiftPack (Guide for charitable organisations and donors) property has a wide meaning. As well as physical things, it includes rights and interests that are capable of ownership and have a value. Non-cash payments are capable of ownership and have a value; hence it is considered to be property.

Donors will transfer the non-cash payments to the entity's account, and as a result, the entity will receive tradeable benefits in the form of the non-cash payments when the actual transfers occur.

Transfer made voluntarily

In order for a transfer of property to be a gift, it must be made voluntarily, that is, it must be the act and will of the giver, and there must be nothing to interfere with or control the exercise of that will (Cypus Mines Corporation v FC of T (1978) 9 ATR 33).

A transfer is not made voluntarily if it is made for consideration or because of a prior obligation imposed on the giver by statute or by contract.

The non-cash payments transferred to the entity are transferred voluntarily, i.e. the transfers are not made for consideration nor because of a prior obligation imposed on the giver by way of statute or contract.

Arises by way of benefaction

The essential attribute of a gift is that there is a conferral of benefaction on the recipient. Deane J in Leary v FC of T 80 ATC 4438; (1980) 11 ATR 145; (1980) 32 ALR 221 explained this at 80 ATC 4453-4454 and 11 ATR 163:

It involves, in my view, the concept that the relevant transfer is by way of well doing in that the recipient will be advantaged, in a material sense and without any countervailing material detriment arising from the circumstances of the transfer, to the extent of the property transferred to him.

Brennan J also said at 80 ATC 4451 and 11 ATR 160:

If the disponor is aware that the receipt of the property by the disponee will impose a liability upon the latter, the disposition may be seen not to be by way of benefaction…No doubt much depends upon a comparison between the property taken and the liability incurred.

The donors who transfer non-cash payments to the entity intend to benefit the entity. There is no countervailing detriment arising from the transfer for the entity. Therefore, the non-cash payments transferred to the entity is by way of benefaction.

No material benefit or advantage

The receipt of a material benefit by way of return to the giver will disqualify the transfer as a gift (FC of T v. McPhail (1968) 117 CLR 111).

Deane J in Leary at 164 said that an obvious example where a material benefit or advantage is received by way of return is where the transfer is made 'in return for valuable consideration received by the transferor from the transferee'.

Brennan J in Leary also expressed that where a giver is found to have received a material benefit in return for a purported gift, it is not necessary that the material benefit comes directly from the recipient of the property transferred.

The donors will not receive any material benefit or advantage from the entity upon the transfer of the non-cash payments.

Conclusion

As specified in sub section 30-228(1) of the ITAA 1997 a DGR may issue a receipt for a gift.

Non-cash payments transferred to the entity will be a gift. The entity can therefore issue a receipt pursuant to sub section 30-228(1) of the ITAA 1997 to a donor who transfers non-cash payments to the entity.

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