Edited version of private ruling

Authorisation Number: 1011725218105

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Ruling

Subject: Income tax exemption - Gift

Question 1

Does the payment received by X from the donor Y towards the funding of a facility meet the definition of gifts for which X can issue a receipt for a tax deductible gift?

Answer

No

This ruling applies for the following periods:

1 July 2009 to 30 June 2010

1 July 2010 to 30 June 2011

1 July 2011 to 30 June 2012

The scheme commences on:

1 July 2009

Relevant facts and circumstances

X is endorsed as a Deductible Gift Recipient (DGR).

Y is an association formed to develop and run a facility for the common use of certain persons associated with X.

A description of the arrangement between X and Y was submitted in the ruling application.

A signed letter outlines the basis of an agreement between the two parties.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 30-15

Reasons for decision

The term 'gift' is not defined in the income tax legislation.

Taxation Ruling TR 2005/13 Income tax: tax deductible gifts - what is a gift (TR 2005/13) provides the Australian Taxation Office (ATO) view on what is a gift for the purposes of the gift deduction provisions. Paragraph 6 of TR 2005/13 states that:

6. 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.

And in paragraph 13 that:

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.

Accordingly, for an entity to receive a payment from a donor as a gift it must meet the four requirements set out in paragraph 13 above.

Consideration of whether the entity meets these conditions is considered further below.

(1) There is a transfer of the beneficial interest in 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.

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.

Page 88 of the ATO's publication GiftPack (Nat 3132-12.2007) states:

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 'asset' as an item of property; an economic resource.

There is a payment of money from the donor Y to the recipient X.

It is accepted that the beneficial interest in the property, in this case being money, is transferred.

This requirement is therefore met.

(2) The transfer is made voluntarily

TR 2005/13 states in paragraphs 23 and 24 that:

23. 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. However, a transfer made under a sense of moral obligation is still made voluntarily.

24. 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.

Paragraphs 96 and 103 of TR 2005/13 states:

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…

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.

103. However where the means chosen to give effect to a voluntary transfer has contractual features, this will not prevent the transfer from being a gift. (emphasis added)

We consider the transfer of money is made for consideration.

A signed letter outlines the basis of an agreement between the two parties.

It cannot be said the payment of money under this agreement is made voluntarily. Money is to be transferred based on an arrangement and agreement between the parties with certain conditions, commitments, rights and or obligations. The arrangements and agreement are therefore more than simply a means to give effect to the transfer of money.

In summary, the transfer is therefore not made voluntarily because there is consideration, and a prior obligation is imposed on the donor by way of the arrangements and agreement.

This requirement is therefore considered not to be met.

(3) The transfer arises by way of benefaction

Paragraphs 27 to 30 of TR2003/15 states:

27. An essential attribute of a gift is that benefaction is intended, and in fact conferred on the recipient. Conferring benefaction means that the DGR is advantaged in a material sense, to the extent of the property transferred to them, without any countervailing detriment arising from the terms of the transfer.

28. Where the giver is aware that the transfer of property will result in detriments, disadvantages, obligations, liabilities or limitations to the recipient, the attribute of benefaction may be missing. Whether benefaction is in fact conferred will depend to a large extent on the proportion which the detriment, disadvantage, obligation, liability or limitation bears to the value of the property transferred.

29. However, detriments, disadvantages, obligations, liabilities, or limitations borne by the recipient which are not within the knowledge and intention of the giver at the time of the transfer, and which do not arise from the terms of the transfer of property by the giver, do not necessarily preclude a finding that the conferral of benefaction was associated with the transfer.

30. Detriments that are immaterial in comparison with the value of the transfer will not preclude a finding that the transfer arises from benefaction.

TR 2005/13 discusses in paragraphs 113 and 140 when a transfer arises by benefaction stating:

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.

It is considered that the recipient X is advantaged via the receipt of monies. The amount of money leads to a conclusion that there is a material advantage.

However, it is considered that the payment of money results in the donor Y being able to enter into an arrangement with the recipient X for its own benefit.

These circumstances indicate this arrangement and agreement will result in certain disadvantages and limitations to the recipient and to this extent, the required attribute of benefaction does not exist. We consider the proportion of the disadvantage and limitation is material in relation to the value of the amount of money provided.

The transfer of money is therefore not by way of benefaction.

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

Paragraphs 142,143 and 156 TR 2005/13 state in regard to material benefit or advantage that:

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).

The agreement signed by both parties requires the donor to pay an amount of money, and in return the donor will receive a benefit.

It is therefore considered that the donor does receive a material advantage in this arrangement, and as a consequence, this requirement is not met..

Conclusion

The payment of money in the circumstances detailed above does not meet the last three (3) requirements as discussed above of what constitutes a gift as set out in paragraph 13 of TR 2005/13, i.e.:

(1) it involves a transfer of a beneficial interest in property (i.e. money);

(2) it involves a transfer which is not made voluntarily;

(3) it does not arise by way of benefaction; and

(4) it does provide the giver a material advantage or benefit.

Accordingly, the payment of money does not amount to a gift as it does not meet all the characteristics or features of 'a gift' as per TR 2005/13 and therefore for the purposes of Division 30 of the Income Tax Assessment Act 1997.