Edited version of your written advice

Authorisation Number: 1012717474352

Ruling

Subject: GST and gifts

Question 1

Is the payment of your funds to the payee consideration for a supply by the payee?

Answer

No.

Relevant facts and circumstances

• You are not registered for goods and services tax (GST).

• You are endorsed as a charity for GST purposes.

• Your main charitable purpose is the promotion of health.

• Your primary source of funding is from donations and fund-raising activities.

• The payee is registered for GST and is a non-profit body.

• The payee has been chosen by the Government to construct a facility that will assist with health issues.

• Under a contract to be entered into between the Government and the payee, the payee, will be required to design and construct a facility that will provide health services.

• The majority of the funding will be provided by the Government.

• The payee has requested you to provide funding for the construction of the facility.

• You wish to make a payment (of $X) to the payee as a contribution towards the costs of designing and constructing the facility.

• To provide the payee with certainty at the outset that the facility will be fully funded, it is proposed you will promise to the payee under a gift deed to be entered into between you and the payee to make a gift (of $X) to the payee.

• The Gift Deed would recognise that the payment of $X is to be used by the payee as a contribution to the design and construction costs of the Facility.

• As between the Government and the payee, the Government will agree to wrap the credit risk of your payment.

• Accordingly, if you do not give $X to the payee as required by the Gift Deed, the Government agrees to pay the $X to the payee on your behalf as your agent.

• If the Government has to make such a payment on your behalf, the primary obligation to make the gift to the payee will remain with you as the principal but the Government will be entitled to be reimbursed by you.

• You have provided a copy of your draft Gift Deed between the payee and yourself.

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 Sub-section 9-17(2)

Reasons for decision

GST is payable on taxable supplies. Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) you make a taxable supply if:

• you make a supply for consideration

• the supply is made in the course or furtherance of an enterprise that you carry on

• the supply is connected with Australia, and

• you are registered, or required to be registered, for GST purposes.

However the supply is not a taxable supply to the extent that it is GST-free or input taxed.

In your situation, what needs to be considered is whether the payment made by you is consideration for a supply which is a taxable supply.

Gifts to non-profit bodies are not consideration

Sub-section 9-17(2) of the GST Act specifically excludes a gift made to a non-profit body (including charities) from being consideration for a supply. For a payment to be considered a gift, it must be unfettered, meaning that there is no obligation to do anything in recognition of the gift and no expectation on the part of the donor to receive anything in return.

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 giver who 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.

A payment made in return for a material benefit or an enforceable obligation to use the funds for a specified purpose is consideration for a supply. The organisation receiving the payment has supplied something in return for the payment.

GSTR 2012/2 provides guidance on what is a gift. Paragraphs 69 to 70:

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.

Therefore, a payment will be a gift where:

• it is made voluntarily and not the result of a prior contractual obligation

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

• it is made essentially out of benefaction.

Is the payment of $X to the payee a gift?

In order for a payment to be considered a gift, it must satisfy the following conditions:

• The payment must be made voluntarily and not the result of a prior contractual obligation.

From the information you have provided, you have entered into a Gift Deed with the payee to give to them $X and have expressed the wish that the payee uses this payment towards the costs of the construction of the facility. You enter into the Gift Deed voluntarily. The Gift Deed does not bind the payee to do anything with the $X payment. You give the payment with an expectation that the payee will use it for the construction of the facility. The payment is made in circumstances which simply create expectations and nothing more.

This view is supported by paragraph 104 of TR 2005/13 which states:

Example 27

104. W voluntarily enters into a deed of gift to transfer five yearly instalments of $2,000 to be paid to a DGR on 30 June each year. Despite having the obligation to make the five $2,000 instalments, they are gifts when paid to the DGR. The decision to enter into the deed of gift was voluntary, and no consideration was received by W in respect of the transfer.

Your payment made to the payee satisfies this characteristic of a gift as the payment is made voluntarily and not the result of an enforceable obligation.

• No material benefit flows to the payer as a result of the payment.

You advise that you will not be receiving any material benefits or remuneration in return for your donation to the payee. Your purpose of the payment is to assist in the construction of a facility that will provide health services to the general public.

This criteria is therefore satisfied.

Please note that where the donor receives a thank you letter (say) in a newsletter or is included as part of a listing of donors on a donor board, this will not amount to a material benefit but is considered a mere acknowledgement; and

• The payment is made out of benefaction.

In your circumstances, we consider that the payment arises by way of benefaction. This criteria is satisfied.

Therefore as you satisfy all of the above criteria, we consider that the payment made to the payee is a gift. Since the GST legislation specifically excludes a gift made to a non-profit body from being consideration for a supply, then your gift to the payee will have no GST consequences.

Further Information:

Please note that the following information also provides further clarification on various circumstances and conditions that may deem certain payments as gifts.

Charities Consultative Committee resolved issues document which is available on the internet at www.ato.gov.au under Issue 2 provides the following:

How will gifts and donations be treated under GST?

Question 1. In what circumstances will a grant made to a non-profit organisation by a philanthropic trust be considered to be a gift rather than a grant of financial assistance? What type of conditions will and will not make it a taxable supply?

A gift to a non-profit body is specifically excluded as consideration for a supply. A grant by a philanthropic trust will be considered to be a gift where:

• the payment is made voluntarily, and not as a result of a prior contractual obligation

• the payer does not receive an advantage of a material character by way of return for making the payment, and

• the payment essentially arises from benefaction.

The fact that the grant has conditions attached which establish the terms on which the grant is made will not, by itself, preclude the grant from being a gift. For example, if the grant conditions:

• stipulate the project for which the funds are to be used

• establish a date of completion for the project

• require the grantee to maintain separately in its books of account, records on how the grant has been used, and

• require that the grantee acknowledge the assistance of the grantor in any published or display material.

the grant may still be a gift.

If, however, the grant conditions provide the grantor with material benefits or impose a binding obligation on the grantee, the grant would not be considered to be a gift. The following are examples of such conditions:

• the grantor is given an interest in any resultant intellectual property that is generated from the research

• the grantor is provided with a share in the income from the commercial exploitation of the research results

• the grantor is allowed to determine how the grantee should acknowledge their assistance (which may extend beyond mere acknowledgment), or

• the grantee must repay the grant if the conditions of the grant are not satisfied.

In these cases, the grant would represent consideration for a supply by the grantee.

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