Edited version of private advice

Authorisation Number: 1012643977315

Ruling

Subject: GST and donation

Question

Are you entitled to claim input tax credits of the GST amount of $Y on the entity's receipt to you for a donation?

Decision:

No, the entity has not made a supply to you, and you have not acquired anything when you make a donation. Thus you are not entitled to claim input tax credits of the GST amount as you have not made a creditable acquisition.

Relevant facts and circumstances

Your ruling is based on the following facts:

You are a clothing wholesaler. You are registered for GST.

You made a donation of stock to a non-profit entity. You issued an Invoice to the entity. On this invoice, you listed garments worth $X, and included GST of $Y.

The entity issued you with a receipt on the same day, stating "Donation: garments value $X; GST $Y".

You confirm that you donated the goods to the entity and you did not receive any money from them. Nor did you receive any material benefit or advantage from the entity for your donation.

You contend that you must have made an acquisition from the entity because you donated goods to the entity. You also assert that you are the recipient of a supply of donation from the entity and wish to claim the amount GST $Y which was listed on the entity's receipt as GST paid on your acquisition of a donation supply. You have tried to obtain a tax invoice from the entity but they replied that when you donate goods to them, they only issue a tax-deductible receipt for income tax purposes, not a tax invoice for GST purposes.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5.

A New Tax System (Goods and Services Tax) Act 1999 Section 9-10

A New Tax System (Goods and Services Tax) Act 1999 Section 9-15

A New Tax System (Goods and Services Tax) Act 1999 Sub section 9-17(2)

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5

A New Tax System (Goods and Services Tax) Act 1999 Section 11-20

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision

Was there a supply of a donation from the other entity to you?

You state that you acquire the entity's supply of a donation. A supply is defined in section 9-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as follows:

9-10 Meaning of supply

(1)   A supply is any form of supply whatsoever.

(2)   Without limiting subsection (1), supply includes any of these:

(a)   a supply of goods;

(b)   a supply of services;

(c)   a provision of advice or information;

(d)   a grant, assignment or surrender of real property;

(e)   a creation, grant, transfer, assignment or surrender of any right;

(f)   a financial supply;

(g)   an entry into, or release from, an obligation:

(i)   to do anything;

(ii)   to refrain from an act;

(iii)   to tolerate an act or situation;

(h)   any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).

Goods and Services Tax Ruling GSTR 2006/9 discusses the concept of 'supply' in the GST Act and the meaning of 'supply' in section 9-10. We refer you to paragraphs 71 to 91, 92 to 94 and 123 to 129.

In general, to make a supply an entity must do something. You state that the entity does not do anything for you. There is nothing which passes from the entity to you. This transaction of your donation of stock to the entity is not a transaction that is based on an agreement that binds the parties in some way. Nor does it involve a supply of goods, services, or some other thing. Hence we do not agree that there is a supply from the entity to you.

The nexus between a supply and consideration

You contend that you must have made an acquisition from the entity because you donated clothes worth $X to the entity. You also assert that you are the recipient of a supply of a donation from the entity and wish to claim an input tax credit of the GST amount which was listed on the entity's receipt as GST paid.

Consideration is defined in section 195-1 of the GST Act to mean any consideration, within the meaning given by section 9-15 of the GST Act, in connection with the supply or acquisition. The meaning given to consideration in section 9-15 of the GST Act extends beyond payments to include such things as acts and forbearances that can be in a non-monetary form. Further, section 9-15 of the GST Act provides that a payment will be consideration for a supply if the payment is in connection with, in response to or for the inducement of a supply.

The concept of consideration includes non-monetary consideration is explained in Goods and Services Tax Ruling GSTR 2001/6 'Goods and services tax: non-monetary consideration' (GSTR 2001/6).

The ruling indicates that there must be a sufficient nexus between a supply and consideration under subsection 9-15(1) of the GST Act. The payment, act or forbearance has to be in connection with, in response to, or for the inducement of a supply.

Paragraphs 68, 71 and 72 of GSTR 2001/6 states:

68. In determining whether a payment is consideration under subsection 9-15(1), the test is whether there is a sufficient nexus between the supply and the payment made.

71. In determining whether a sufficient nexus exists between supply and consideration, regard needs to be had to the true character of the transaction. An arrangement between parties will be characterised not merely by the description that parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.

72. The test as to whether there is a sufficient nexus is an objective test. The motive of the supplier and the recipient also may be relevant in determining whether the supply was made for consideration, if a reasonable assessment of the evidence supports that motive.

The ruling goes on to discuss the economic value and independent identity of non-monetary consideration for a supply. Paragraphs 80-86 of GSTR 2001/6 state:

Economic value and independent identity

80. As stated at paragraph 68, the test for determining whether a payment is consideration for a supply is whether there is sufficient nexus between the supply and the payment. Consideration for a supply may include acts, rights or obligations provided in connection with, in response to, or for the inducement of a supply. However, things such as acts, rights and obligations can often be disregarded as payments as they do not have economic value and independent identity separate from the transaction.

81. For a thing to be treated as a payment for a supply, it must have economic value and independent identity provided as compensation for the making of the supply. That is, it must be capable of being valued and be a thing that an acquirer would usually or commercially pay money to acquire. Whether this requirement is satisfied will usually be demonstrated by the parties to an arrangement assigning a specific or separate value to the thing. However, the assigning of a value by the parties is not necessary for a thing to have economic value.

82. Whether a payment is consideration for a supply depends on the true character of the transaction. Consideration for a supply is something the supplier receives for making the supply. Although a non-monetary payment (and acts or forbearances) can form consideration, the character of the transaction will determine whether it forms part of the consideration received by the supplier for making the supply.

83. Many transactions involve exchanging various rights and obligations between the parties to the transaction. In particular, the true character of the transaction may characterise the payment as a condition of the contract rather than the provision of non-monetary consideration. For example, in many cases, agreeing to enter into a contract to receive a supply for a specific period of time is not non-monetary consideration for that supply.

84. Also, subject to the terms of the agreement, transactions will often involve a supply made only for monetary consideration. In these circumstances, obligations entered into as part of the transaction by the entity that is liable to provide the money will not be separate parts of the consideration for the supply. Similarly, where the transaction in substance involves a supply made for a thing that is non-monetary consideration, the obligations to provide that thing will not constitute separate parts of the consideration.

On the information you provided, it is considered that the true character of the transaction is that you made a donation of goods to the entity. There is no nexus between any supply by the entity and your donation of stock so that the stock can represent non-monetary consideration for any supply from the entity. Accordingly, it is considered that the stock you donated does not constitute non-monetary consideration provided by you to the entity.

In addition, what you donated could be considered a gift to a non-profit body. We discuss this in the next step.

Gifts to non-profit bodies are not consideration

For a payment to be considered a gift it must be unfettered, that is, there must be no obligations to do anything in recognition of the gift and no expectation on the part of the donor to receive anything in return for the donation. The term gift and donation are not defined in the GST Act and the ordinary meaning of the terms gift and donation are similar.

What constitutes a 'gift' for GST and income tax purposes have been set out in two public rulings - Goods and Services Tax Ruling GSTR 2012/2 (Goods and services tax: financial assistance payments) and Taxation Ruling TR 2005/13 (Income Tax: tax deductible gifts - what is a gift). The guidelines set out in TR 2005/13 are also applicable for GST. Both rulings state that amongst other things, a gift ordinarily proceeds from a detached and disinterested generosity of the donor. Also, the giver must not receive a benefit or an advantage of a material nature by way of return. However it is a question of fact in each case whether any benefit or advantage is considered material.

Subsection 9-15(1) of the GST Act provides that the term consideration includes any payment, or any act or forbearance, in connection with, in response to or for the inducement of a supply of anything. However, subsection 9-17(2) of the GST Act specifically excludes a gift made to a non-profit body from being the provision of consideration. 'Gift' and 'non-profit body' are the essential terms in this subsection. It follows that if a payment by you to the other entity, a non-profit body, is a gift, there will not be a taxable supply from the other entity, unless there is another supply made by that entity for the payment (as consideration for the other supply).

GSTR 2012/2 provides guidance on what is a gift. Paragraphs 69 - 71 and 110 - 111 state:

69. Gifts to a non-profit body are not consideration for a supply.

70. The term 'gift' is not defined in the law and therefore takes its ordinary meaning having regard to the context in which it appears. It is considered that a 'gift' has the following characteristics and features:

• there is a transfer of a 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 (payer) by way of return.

71. In applying these criteria, the courts have recognised that the criteria may not be absolute and may involve a matter of degree.

110. The term 'gift' is not defined in the GST Act and so takes on its ordinary meaning in the context in which it appears. In Federal Commissioner of Taxation v. McPhail (McPhail), in an income tax context, Owen J said that the term 'gift' is 'used in the sense in which it is understood in ordinary parlance'. The Commissioner considers that for GST purposes, income tax cases relating to gifts provide relevant guidance. The income tax legislation similarly gives special treatment to gifts to some charitable and non-profit bodies.

111. As explained in Taxation Ruling TR 2005/13 Income tax: tax deductible gifts - what is a gift, the courts have described a gift, as ordinarily understood, as having the following characteristics and features:

• there is a transfer of a 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 (payer) by way of return.

Broadly, a payment is a gift where:

• the payer makes the payment voluntarily and is not the result of a prior contractual obligation

• no material benefit flows to the payer as a result of the payment, and

• the payment is made essentially out of benefaction.

A payment will not be a gift where there is a contractual obligation on the part of the charity or non-profit organisation to use the funds in a specified way or the provision of a material benefit to the donor.

You state there is no contractual obligation on the part of the entity to use the clothes you donated in a specified way, and the entity did not provide any material benefit to you. Hence your donation of clothing is a gift, the value of which is $X, the listed value of the clothes donated.

Entitlement to claim input tax credits

Section 11-20 of the A New Tax System (Goods and Services Act) 1999 (GST Act) states that you are entitled to claim the input tax credit for any creditable acquisition that you make.

Section 11-5 of the GST Act states:

You make a creditable acquisition if:

(a) you acquire anything solely or partly for a *creditable purpose; and

(b) the supply of the thing to you is a *taxable supply; and

(c) you provide, or are liable to provide, *consideration for the supply; and

(d) you are *registered, or *required to be registered.

As discussed above, the entity did not make any supply to you, and you have not acquired anything. Accordingly you have not made a creditable acquisition. You do not satisfy paragraphs 11-5(a), or 11-5(b) or 11-5(c) of the GST Act and you are not eligible to claim the GST amount of $Y on the entity's receipt to you.

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