Edited version of private ruling

Authorisation Number: 1011844851779

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Ruling

Subject: Gifts and donations

Questions and answers:

1. Are you entitled to a deduction for purchasing airfares in cash so that your companion child can accompany you on holidays and business trips?

No.

2. If no, would the situation change if you had:

(a) a specific parental authority (SPA) for the child issued under a Section 518 of the Children and Young People Act 2008 (ACT); and/or

(b) equitant to a SPA issued under the Children and Young Persons (Care and Protection) Act 1998 (NSW).

No.

3. Are you entitled to a deduction for gifting the following items to an endorsed Deductible Gift Recipient (DGR)?

(a) airfares purchased in cash;

(b) airfares purchased using frequent flyer points;

(c) claims for reimbursement for items used for the organisation which would normally be repaid on a cost recovery basis?

No.

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commenced on:

1 July 2010

Relevant facts and circumstances

You are a volunteer with an endorsed deductible gift recipient (DGR) which involves volunteering as a carer for children in need.

As part of those programs you regularly take specific children you have been matched with on activities.

It is the principle of these arrangements that full cost recovery for expenses are made.

As part of the arrangements with these children you regularly take them with you when you travel.

This includes:

· work-related business trips (your travel costs funded by your employer);

· self-education-related trips (costs funded personally); and

· leisure (costs funded personally).

The children's activities are funded by the organisation; due to the cost involved you do not claim airfares for the children, however, the e-tickets are provided to the organisation.

When you travel with the children you act as an agent for the organisation.

You purchase airfares in the names of the children using both cash and your frequent flyer points.

You do not transfer your frequent flyer points to the DGR.

The children do not carry out any work-related duties when they accompany you on your business trips.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 78(2)
Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Division 30

Reasons for decision

Gifts and donations

Division 30 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the rules governing deductions for certain gifts or contributions that you make. Division 30 is also subject to the operation of section 78A of the Income Tax Assessment Act 1936 (ITAA 1936) which strengthens the conditions under which deductions are available and denies deductions for superficial gifts made as part of tax avoidance arrangements or schemes.

The Commissioner's views on the essential elements of a gift are set out in Taxation Ruling
TR 2005/13 which states that, as the term 'gift' is not defined in the legislation, it has its ordinary meaning. The types of non-testamentary gifts (to the value of $2 or more) to a DGR that can be deductible include:

· money;

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

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

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

· property under the Cultural Gifts Program; or

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

· The courts have described a gift as having the following characteristics:

· 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.

The courts have recognised that the criteria may not be conclusive and may involve a matter of degree. It is necessary to consider all the circumstances surrounding a transfer and this may include consideration of parties other than the giver and the deductible gift recipient (DGR). It is the substance and reality of the transfer that has to be ascertained.

Airfares

1. 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. The property which belonged to the giver must become the property of the DGR. The giver must do everything that is necessary to transfer ownership to the DGR. Where an owner gives only part of what is owned (for example ten of fifty hectares of land), only the part that is transferred can be a gift.

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. An exception is cultural and heritage gifts.

As the airfares purchased in cash or by using your frequent flyer points did not become the property of the DGR and the DGR did not obtain immediate and unconditional right of custody and control of the airfares, there is no characteristic identifying the act as a gift to the DGR.

2. Transfer made voluntarily

For a transfer of property to be a gift, it must be made voluntarily. A transfer made under a sense of moral obligation is still made voluntarily. 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. A transfer is not made voluntarily where the giver is offered a choice of making a purported gift to the DGR as an alternative to discharging or reducing the giver's contractual obligation to the DGR or an associate of the DGR, or the choice, once exercised, has the effect of discharging or reducing the giver's contractual obligation owed to the DGR or associate of the DGR.

The airfares purchased in cash or by using frequent flyer points were given voluntarily however a prior obligation existed in that they were for the use of the children matched to you to allow them to travel with you. Therefore the characteristic of a gift does not exist.

3. Arises by way of benefaction

An essential character of a gift is that benefaction is intended, and in fact given to 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 disadvantage arising from the terms of the transfer.

Transfers of property which are made to a DGR on condition that the property will be transferred to a second entity raise concerns as to whether benefaction has been conferred on the DGR. If the effect is that the DGR is merely an agent to pass the transferred property on to another, no benefaction will be conferred on the DGR itself. Where the second entity is a non-DGR, no benefaction is conferred on any DGR.

Again, the airfares purchased in cash or by using frequent flyer points would be seen to be conferred on the DGR as an agent to be passed on to the children accompanying you on your travels. The characteristic of a gift does not exist.

4. No material benefit or advantage

To constitute a gift, the donor must not receive a benefit or an advantage of a material nature by way of return, whether from the DGR or another party. Any benefit that is received (or is reasonably expected to be received) by an associate of the giver has to be taken into account in determining whether a transfer falls within the provisions of ITAA 1936 section 78A(2)(c).

Section 78(2) of the ITAA 1936 advises that a deduction under Division 30 of the ITAA 1997 is generally not allowable if the gift is made under arrangements whereby:

(a) its value to the recipient institution is less than the value of the property at the time the gift is made;

(b) the recipient institution comes under an obligation in relation to the donation;

(c) the donor (or an associate) obtains some collateral benefit in connection with the gift; or

(d) the recipient institution undertakes to acquire property from the donor or an associate of the donor.

If you purchase airfares in cash or by using frequent flyer points, the DGR is not getting any value of the gift as the airfares are being used by you to take your companion children with you on your unrelated business trips.

The DGR comes under an obligation to give the tickets to you so that your companion children can accompany you on your unrelated trips.

If the act of gifting the airfares were allowable, you would have the collateral benefit of being 'reimbursed' for the expense of taking your companion children with you on your unrelated business trips.

Paragraph 21 of TR 2005/13 explains that any expenditure incurred by a volunteer in the course of providing unpaid services does not constitute a gift, nor is it deductible under section 8-1 of the ITAA 1997 as a loss or outgoing incurred in gaining or producing assessable income.

You base your arguments on paragraphs 91 and 182 of TR 2005/13.

Paragraph 91 reads:

91. P buys toys at her local toyshop and gives them away to children she helps while working as a volunteer at a clinic for a DGR. There is no transfer of property to the DGR, and so there is no tax deductible gift. However, if she gives the toys to the DGR (and it uses them in its clinic), she will have made a gift to the DGR. If the DGR chooses to give the toys away to the children who attend its clinic, this will not affect the fact that P has previously made the gift to the DGR.

You purchase the airfares in the names of the children; there is no transfer of property to the DGR and so there is no tax deductible gift.

Paragraph 182 states:

182. However any rights, privileges or entitlements received will be a material benefit as in Hodges where the taxpayer paid $1,100 (for defraying the cost of his airfares) to a DGR to be allowed to participate in an overseas aid project.

In Hodges 97 ATC 2158 a contribution to an overseas aid fund that enabled the taxpayer to participate in an aid project and which funded his airfare and accommodation was found to not be a gift.

Conclusion

Purchasing airfares either in cash or by using your frequent flyer points does not constitute a gift for the purpose of meeting the requirements of section 30-15 of the ITAA 1997 as there has not been a transfer of a beneficial interest in property.

Unclaimed expenses

Omitting to claim expenses you have incurred from the DGR does not give rise to a gift or donation to the DGR. We have examined the meaning of gifts as outlined in TR 2005/13 and identified that is a requirement that identifiable property has in fact been transferred to the DGR.

The ruling explains that it is necessary to ascertain whether a transfer has occurred, what property has been transferred, and when the transfer took place. This is to ensure that ownership of identifiable property has been given and has been transferred to the DGR.

In Milroy v. Lord, Turner LJ said that for a gift to be valid and effectual, the giver:

…must have done everything which according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him….

By omitting to claim the expenses from the DGR there is no official transfer of ownership from donor to the DGR. Paragraphs 83 and 84 of TR 2005/13 state:

83. Services that are provided to a DGR by volunteers are not tax deductible as there is no transfer of property involved. Likewise any expenses that may be borne by the volunteer in the course of providing the services to the DGR are not deductible as gifts as there is no transfer of property to the DGR.

84. In Case S43 85 ATC 343; (1985) 28 CTBR (NS) Case 49, the Board of Review affirmed the decision of the Commissioner to deny deductions for motor vehicle, postage and telephone expenses totalling $675 incurred by the taxpayer in the course of undertaking voluntary work for a DGR. The Board held that the taxpayer did not make a gift of money or property to the DGR. What the taxpayer gave was simply his services.

The first characteristic that 'there is a transfer of the beneficial interest in property' is pivotal to the remaining three characteristics as they hinge on the requirement that there has been a 'transfer of property' in the first instance and if this is not met then as a consequence the remaining three will also not be met.

In addition, the requirement that the gift must be of money or property that is covered by one of the gift types is considered not to have been met on the basis that a 'gift' as per the definition outlined under TR 2005/13 has not been made.

Conclusion

Unclaimed expenses do not constitute a gift for the purpose of meeting the requirements of section 30-15 of the ITAA 1997 as there has not been a transfer of a beneficial interest in property.

Deductibility of expenses - accompanying travellers

Section 8-1 of the ITAA 1997 states that you can deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing assessable income and is not capital, private or domestic in nature.

A number of significant court decisions have determined that, for an expense to satisfy the tests in section 8-1 of the ITAA 1997:

· it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income producing expense (Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 7 AITR 166; (1958) 11 ATD 404);

· there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL & Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 4 AITR 236; (1949) 8 ATD 431); and

· it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore & Co (WA) Pty Ltd v. Federal Commissioner of Taxation (1956) 95 CLR 344; (1956) 11 ATD 147 (1956); 6 AITR 379; FC of T v. Cooper (1991) 29 FCR 177; 91 ATC 4396; (1991) 21 ATR 1616; Roads and Traffic Authority of NSW v. FC of T (1993) 43 FCR 223; 93 ATC 4508; (1993) 26 ATR 76; Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 557).

Thus, to be deductible your expenses would need to fulfil the requirements of section 8-1 of the ITAA 1997.

Taxation Determination TD 2006/62 considers the taxation treatment of certain payments to volunteer foster carers to provide foster care. TD 2006/62 explains that payments made to volunteer foster carers are not assessable income where:

· the payments are made to help meet the costs associated with providing care for foster children,

· the foster carer is not an employee of a foster care agency,

· the payments are not received as part of a business of providing foster care, and

· the payments are the standard or basic foster care subsidies plus additional loadings or allowances and are not payments for, or in the nature of payments for, the provision of services.

The payments you receive are made to you as reimbursement of the costs associated with the care of your companion child. Such payments are not ordinary income. You are not employed by the DGR and you are not in the business of providing foster care.

Your companion children accompany you on your business trips because there is no-one else to take care of them in your absence. The children are not involved in your work-related activities in any capacity.

Accordingly, the expenditure incurred in taking your companion children with you on trips that are unrelated to the DGR does not have the required association with the income you earn for that employment as the income is not paid to you for your services as a companion to the children. Any expenses you incur whilst on holidays or undertaking leisure activities are private in nature and are not deductible.

Conclusion

The expenditure is not incurred in the course of gaining or producing your assessable income. You are not entitled to a deduction under section 8-1 of the ITAA 1997 for the costs incurred for an accompanying child travelling with you when you travel for a work-related purpose.

Specific parental authority

The Children and Young People Act 2008 (ACT) explains that a specific parental authority (SPA) is an authorisation given to a carer by a delegated person of an organisation.

Fundamentally, being in possession of a SPA would not alter the requirements of deductibility under section 8-1 of the ITAA 1997.

Similarly, the objects of the Children and Young Persons (Care and Protection) Act 1998 (NSW) are to ensure that children and young persons receive such care and protection as is necessary for their safety, welfare and well-being. The act also administers appropriate assistance to parents and other persons responsible for children and young persons in the performance of their child-rearing responsibilities in order to promote a safe and nurturing environment.

Being the holder of an authorisation under either of these Acts would not fulfil the essential characteristics of an eligible deduction as outlined above.

As a volunteer carer the expenses you incur in the course of these responsibilities are not deductible against your assessable income because the required nexus between the role and your assessable income does not exist.