Edited version of private ruling

Authorisation Number: 1011812402591

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Ruling -

Subject : Gifts

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 "Barter dollars" through a "Barter Company"?

Answer:

Yes.

This ruling applies for the following periods:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commences on:

1 July 2010

Relevant facts and circumstances:

The entity is a non-profit company that 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 Barter Dollars made by persons through a Barter Company.

Background

The entity is endorsed as a deductible gift recipient (DGR).

The Barter Transaction

A potential donor has contacted the entity showing interest to donate some Barter dollars to assist its purpose. The way to donate the Barter dollars is for both the potential donor and the entity to open an account with the Barter Company. The potential donor can then donate by transferring the Barter dollars into the Company's account. This is the barter transactions. There are also several more individuals who are interested in making donations to the entity through the Barter Transaction.

The Barter dollars will be used to assist the entity to pay for certain expenses to achieve its purposes.

Relevant legislative provisions

Income Tax Assessment Act 1997 30-55.

Income Tax Assessment Act 1997 30-228.

Income Tax Assessment Act 1997 50-5.

Relevant Rules and Determinations

Taxation Ruling TR 2005/13

Reasons for decision

Detailed reasoning

Sub section 30-228(1) of the ITAA 1997 states that if a deductible gift recipient (DGR) issues a receipt for a gift, the receipt must state the name and ABN of the deductible gift recipient 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 deductible gift recipients 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. Barter dollars are capable of ownership and have a value, hence it is considered to be property.

Under the barter transaction, the donors will transfer the Barter dollars to the Company's account through the Barter Company. As a result, the entity will receive tradeable benefits in the form of the Barter dollars when the actual transfers occur, and there will be a transfer of a beneficial interest in property.

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.

Under the Barter Transaction, the Barter dollars transferred to the entity will be 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 idea 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 potential donors who transfer Barter dollars to the entity intend to benefit the entity. There will also not be any countervailing detriment arising from the transfer for the entity. Therefore, the Barter dollars transferred to the entity through the Barter Transaction will be 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 potential donors will not receive any benefit or advantage from the entity upon the transfer of the Barter dollars, therefore, no material benefit or advantage will be received by way of return to the donors from the entity.

Conclusion

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

Barter dollars transferred to the entity will be a gift. The entity may therefore issue a receipt pursuant to sub section 30-228(1) of the ITAA 1997 to a donor who transfers Barter dollars to the entity.