Edited version of your written advice

Authorisation Number: 1013087639719

Date of advice: 9 September 2016

Ruling

Subject: Gift receipts

Question 1

Can a DGR issue a tax deductible receipt for services provided in lieu of payment for services under Division 30 of the Income Tax Assessment Act 1997?

Answer

No

Question 2

Can a DGR issue a tax deductible receipt for gifts of property under Division 30 of the Income Tax Assessment Act 1997 where a co-payment is made to the donor?

Answer

No

Question 3

Can a DGR issue a tax deductible receipt for gifts of property under Division 30 of the Income Tax Assessment Act 1997 where no co-payment is made to the donor?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 2017

The scheme commences on:

1 July 2016

Relevant facts and circumstances

The DGR is endorsed under item 4.1.1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a Public Benevolent Institution under Subdivision 30-B.

The DGR wishes to provide a tax deductible receipt for the difference between the value of the service supplied and the cost of the service.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 30

Income Tax Assessment Act 1997 Section 78A

Reasons for decision

Question 1

Summary

Services made to a DGR are not considered a gift that is deductible as they do not fall within the accepted types of non-testamentary gifts and therefore the DGR cannot issue a gift receipt for the services.

Detailed reasoning

Division 30 of the Income Tax Assessment Act 1997 (ITAA 1997) states the rules for the deductibility of gifts and donations. Section 30-15 of the ITAA 1997 provides that a gift to any fund or institution which is a deductible gift recipient (DGR) is allowable as a deduction in the income year in which the gift is made, provided the gift meets the various conditions of the relevant subsections.

For a donor to claim a deduction for a gift:

1. the gift must be made to a deductible gift recipient (DGR)

2. the payment must really be a gift

3. the gift must be of money or property that is covered by one of the gift types, and

4. and gift conditions must be satisfied.

Item 1 of Division 30-A of the ITAA 1997 provides a list of the types of gifts to public benefit institution that may be deductible include:

1. money

2. property that you purchased during the 12 months before making the gift

3. an item of your trading stock disposed of outside the ordinary course of business

4. property valued by the Commissioner at more than $5,000

5. shares that you acquired in a listed public company

The Taxation Ruling TR 2005/13 Income tax: tax deductible gifts - what is a gift (TR 2005/13) explains what is a gift for the purposes of the gift deduction provisions. At paragraph 13 of TR 2005/13 it states that:

The term 'gift' is not defined in the ITAA 1997. For the purposes of Division 30 of the ITAA 1997 the word 'gift' has its ordinary meaning.

TR 2005/13 in paragraph 21 states that the provision of services to a DGR by a volunteer does not constitute a gift, as the ordinary meaning of property does not include services.

Therefore services made to a DGR are not a gift that is deductible as they do not fall within the accepted types of non-testamentary gifts and therefore DGR cannot issue a gift receipt for the services.

Question 2

Summary

A tax deductible receipt cannot be issued for gifts of property where there a co-payment is made to the donor. This is because the transfer of the gift is not considered to be voluntary, the transfer is not made by way of benefaction and there is a material benefit or advantage received by the giver by way of return.

Detailed reasoning

Paragraph 6 of TR 2005/13 states

1. Division 30 of the ITAA 1997 provides that the types of non-testamentary gifts (to the value of $2 or more) to a DGR that can be deductible include:

1. money;

2. property (including trading stock) purchased during the 12 months before the gift was made;

3. property valued by the Commissioner at more than $5,000;

4. an item of trading stock disposed of outside the ordinary course of business;

5. property under the Cultural Gifts Program; or

6. gifts of places listed in the Register of the National Estate.

Paragraph 13 of TR 2005/13 states that:

13. Rather than attempting a definition of gift, the courts have described a gift as having the following characteristics and features:

1. there is a transfer of the beneficial interest in property;

2. the transfer is made voluntarily;

3. the transfer arises by way of benefaction; and

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

For the DGR to be able to accept a gift of property where there is co-payment, the property must fall into one of the categories in paragraph 6 of TR 2005/13 and meet the four requirements in paragraph 13 of TR 2005/13.

1. There is a transfer of the beneficial interest in property

The making of a gift to a deductible gift recipient (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. 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.

Property

Paragraph 17 of TR 2005/13 states that it is a requirement that identifiable property has in fact been transferred to the deductible gift recipient.

As mentioned above, paragraph 21 of TR 2005/13 refers to property as being interpreted in the ordinary meaning of the word. The Macquarie Dictionary defines property as that which one owns; the possession or possessions of a particular owner.

Property has a wide meaning. As well as physical things, it includes rights and interests that are capable of ownership and have a value.

The Macquarie Dictionary defines property as:

1.  that which one owns; the possession or possessions of a particular owner.

2.  goods, lands, etc., owned: a man of property.

3.  a piece of land owned: property near Bondi.

4.  ownership; right of possession, enjoyment, or disposal of anything, especially of something tangible: to have property in land.

and Intellectual property as:

noun the rights of creative workers in literary, artistic, industrial and scientific fields which can be protected either by copyright or trademarks, patents, etc. Abbrev.: IP

In the circumstance of a website being donated the whole website would not be considered to be property. The components of the website that amount to intellectual property such as video, text, artworks and underlying source code would be considered to be property and could be gifted under Division 30.

The Commissioner of Taxation would need to value the aspects of the website that are gifted as property. The valuation by the Commissioner is unlikely to equal the market value of providing the website as this would take into account the service costs of making the website.

Transfer of beneficial interest

TR 2005/13 states in paragraph 17 to 19 that:

17. It is a requirement that identifiable property has in fact been transferred to the DGR

18. For there to be a transfer, the property which belonged to the giver must become the property of the DGR. A gift is effectual only where the giver has 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. Where an owner gives only part of what is owned (for example, ten of fifty hectares of land, or 200 shares of a parcel of 800 shares), only the part that is transferred (the ten hectares, or the 200 shares) can be a gift.

19. If the DGR fails to obtain immediate and unconditional right of custody and control of the property transferred, or less than full title to the transferred property is transferred, a gift deduction will not arise. This will be by reason of the meaning of gift, and/or by reason of the operation of section 78A of the ITAA 1936. ¹

For a transfer of beneficial interest in the property the aspects that amount to property have to be transferred as per the agreements between the parties. Therefore, providing the contract allows for the aspects of the website that are considered to be property to be transferred, the website would be considered to be transferred to DGR.

Requirement 1 Conclusion:

Some aspects of a website could be identified as property and therefore it would be accepted that there is a transfer of the beneficial interest in the property.

2. Transfer made voluntarily

Transfer pursuant to legal obligation not voluntary

TR 2005/14 states that:

96. To qualify as a gift, the transfer of property has to be voluntary. The transfer must not have arisen from any obligation imposed by law, whether by contract or otherwise. In McPhail Owen J said:

it must appear that the property transferred was transferred voluntarily and not as a result of a contractual obligation to transfer it...¹⁹

In Leary Bowen CJ said:

It seems that a payment ... will not generally be regarded as voluntary if made under an obligation imposed by law, whether under contract or otherwise.²⁰

Where the transfer of the property is made under contract, implied or expressed and for consideration, for example part payment, the transfer would not be considered as made voluntarily.

Requirement 2 Conclusion

It is not accepted that the transfer will be voluntarily made.

3. The transfer arises by way of benefaction

TR 2005/13 states

113. The 'essential idea' of a gift is that there is a conferral of benefaction on the recipient. In Leary Deane J explained this feature:

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.

140. The intention to confer benefaction need not be the sole reason for making a gift. For example, the fact that the giver is also motivated by the desire to obtain a tax deduction will not, by itself, deprive a payment of its character as a gift: Federal Commissioner of Taxation v. Coppleson 81 ATC 4550 at 4551- 4552; (1981) 12 ATR 358 at 360.

The transfer of property to the DGR is likely to advantage the organisation in pursuing its purposes however a co-payment is a material detriment.

Requirement 3 Conclusion

It is not accepted that the transfer arises by way of benefaction.

4. No material benefit or advantage is received by the giver by way of return

TR 2005/13 states:

142. The receipt of a material benefit by way of return to the giver will disqualify the transfer as a gift (Owen J in McPhail). In that case the fee concession constituted a material benefit received by the giver upon making a payment to a school building fund (a DGR).

143. 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'

156. Only advantages or benefits that are material will affect whether a transfer is a gift (McPhail). The requirement of materiality will exclude matters of a de minimis nature (Hodges).

As the donors will receive a co-payment or part-payment, this payment is of a material nature being valuable consideration.

Requirement 4 Conclusion

It is not accepted that no material benefit or advantage is received by the giver by way of return.

Question 3

Summary

A tax deductible receipt for gifts of property could be issued where no co-payment or part-payment is received by the supplier.

Detailed reasoning

Where no co-payment or part-payment is received by the supplier and provided that the gift requirements are met a tax deductible receipt for gifts of property could be issued.

If for example, no co-payment or part-payment was received by the supplier of a website, and the property value of the website was valued by the Commissioner of Taxation as being worth more than $5000.00, it would be considered a gift.

Using a website for an example, any valuation would be based on the intellectual property of the website not on the market value of creating the website. As previously stated above the intellectual property aspects could include the content, artwork and the coding. The Commissioner would need to value the aspects of the website that are considered property. The valuation by the Commissioner is unlikely to equal the market value as the market value takes into the service costs of making the website.

Question 3 Conclusion

If the tests are met then a tax deductible receipt for gifts of property could be issued where no co-payment or part-payment is received by the supplier.

Further things to consider

If the property was considered a gift under Division 30 of the Income Tax Assessment Act 1997 the provisions in Subdivision 78A of the ITAA 1997 may apply.

TR 2005/13 states as follows:

45. Even if a particular transfer of property may arguably be a gift, the anti-avoidance provisions of section 78A of the ITAA 1936 may apply. Where that section applies, an income tax deduction for the gift will not be allowable under Division 30 of the ITAA 1997.

46. Section 78A does not apply to deny deductions for genuine gifts made under ordinary circumstances.

47. Section 78A applies where by reason of the making or receipt of the gift or any scheme or arrangement associated with the gift:

• the amount or value of the benefit derived by the DGR as a consequence of the gift is, or will be, or may reasonably be expected to be, diminished subsequent to the receipt of the gift (paragraph 78A(2)(a));

• another fund, authority or institution, other than the recipient DGR makes, or becomes liable to make, or may reasonably be expected to make a payment, or transfer property to any person or incur any other detriment, disadvantage, liability or obligation (paragraph 78A(2)(b));

• the giver or the giver's associate obtains, or will obtain, or may reasonably be expected to obtain any benefit, advantage, right or privilege apart from the benefit of a tax saving associated with the gift deduction (paragraph 78A(2)(c)) (emphasis added); or

• the recipient DGR or another fund, authority or institution acquires property, directly or indirectly, from the giver or the giver's associate (paragraph 78A(2)(d)).

48. The provision applies to purported gifts if there is considerably reduced benefaction in fact conferred upon the recipient DGR arising from the transfer of the property, or alternatively, if the benefit of the transfer was obtained by the recipient DGR, another (associated) fund, authority or institution bears obligations as a result of the transfer. It also applies if the benefit associated with the transfer of the property is returned either wholly or in part to the giver or the giver's associate.

49. Paragraphs 78A(2)(a), (b) or (c) apply if the diminished benefit or the obligations arising on the part of the recipient DGR or another fund, authority or institution happen by reason of any act, transaction or circumstance that has occurred, or will occur, or may reasonably be expected to occur as part of, or in connection with, or as a result of:

• the making or receipt of the gift; or

• any scheme or agreement entered into in association with the making or receipt of the gift.

50. In characterising a transfer of property, paragraph 78A(2)(c) requires consideration to be taken not only of any advantage or benefit received by the giver but also by the associate of the giver. While the receipt of any material advantage or benefit by the giver disqualifies a transfer from being considered a gift, paragraph 78A(2)(c) extends the range of benefits which precludes tax deductibility to include any right or privilege obtained as a result of the transfer.

51. The net result is that the DGR obtains a benefit that is considerably less in comparison with the nominal value of the property transferred and for which the giver seeks a tax deduction. Section 78A operates in these circumstances to deny the whole of the deduction for the purported gift.

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