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Authorisation Number: 1011877917533

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Ruling

Subject: Gifts

Question 1

Can the entity, as a non-profit organisation, provide a receipt for a tax deductible donation where a gift is otherwise made by a donor and a donor may in certain circumstances be given an opportunity to join the proposed Program (irrespective of whether the donor decides to pursue that opportunity or not)?

Answer

Yes

This ruling applies for the following periods:

Income year ended 30 June 2011

Income year ended 30 June 2012

Income year ended 30 June 2013

The scheme commences on:

1 July 2010

Relevant facts

The entity is a non-profit organisation.

The entity is proposing to run a "Program". The Program operates on an invitation only basis where existing/potential donors who have already made or will make donations may be invited to join the program.

Prospective and current donors are sent a letter with an accompanying donation form.

The letter provides an option to take out a membership. Membership entitles donors to certain benefits for the payment of a fee.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 30-15

Reasons for decision

Division 30 of the Income Tax Assessment Act 1997 (ITAA 1997) deals with the deductibility of gifts or contributions a taxpayer makes.

For the purposes of Division 30, the word 'gift' is not defined in the ITAA 1997. The word 'gift' has its ordinary meaning and its definition is discussed in case laws and in Taxation Ruling Income tax: tax deductible gifts - what is a gift (TR 2005/13).

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 if 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 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

Paragraphs 16 to 18 of TR 2005 / 13 state the making of a gift to a non-profit organisation (non-profit organisation) involves the transfer of a beneficial interest in property to that non-profit organisation. For there to be a transfer, the property which belonged to the giver must become the property of the non-profit organisation. 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 non-profit organisation.

TR2005/13 states:

61. The making of a gift to a non-profit organisation involves the transfer of money or property to that non-profit organisation: section 30-15 of the ITAA 1997. In the simplest cases this involves the delivery of money (cash, cheque or electronic transfer of funds) or goods to the non-profit organisation.

62. In each case 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 divested and has been transferred to the non-profit organisation (c.f., Re Rose (dec'd); Rose v. Inland Revenue Commissioners [1952] 1 All ER 1217).

63. 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….

The program that the entity operates is on an invitation only basis where existing/potential donors who have already made or will make donations may be invited to join the program.

The donation form indicates that when donors make payments to the entity, the beneficial interest in property, i.e. money, will be transferred from the donor to the entity.

This requirement would therefore be met.

Transfer is 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.

The solicitation of donations via a letter and its attached donation form indicate the beneficial interest in property is transferred voluntarily as there is no consideration given nor is there a prior obligation imposed on the giver by statute or by contract.

This requirement would therefore be met.

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.

Donors who transfer money to the entity will intend to benefit the entity. It is accepted that there will also not be any countervailing detriment arising from the transfer for the entity. Therefore, it is accepted that monies transferred to the entity will be by way of benefaction

This requirement is therefore met.

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

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.

As stated above, the main issue to consider is whether the advantages or benefits are material, because the material nature of the advantages will affect whether a transfer is a gift. The requirement of materiality will exclude matters of a de minimis nature (AAT Case 12,314 Re Hodges v. FC of T 97 ATC 2158; (1997) 37 ATR 1091).

TR 2005/13 discusses several circumstances on what is considered to be a material benefit or advantage. Specifically, TR 2005/13 considers whether a benefit is insignificant in comparison with the value of transfer and the following is stated in paragraph 169:

It is a question of fact in each case whether any benefit or advantage is sufficiently significant to be material. Where a benefit of utility or value is received, it will only be considered as not material if there is a considerable disproportion between the value of the transfer and the benefit received. For example, a benefit in the form of a key-ring might be immaterial when considering a transfer of $4,000 but significant for a $4 payment.

TR 2005/13 also considers the situation where the non-profit organisations undertake fundraising campaigns and offer incentives to potential donors. Specifically, paragraph 163 states:

Incentives offered

163. Where non-profit organisations undertake fundraising campaigns, the features of the campaigns can assist in determining whether the amounts transferred to the non-profit organisation are gifts. It may be clear from some campaigns that they do not seek to elicit gifts.

The entity advises that the membership fee to the Program is sufficient to cover the costs associated with providing the corresponding membership benefits. Most of the membership benefits are not available in the retail market generally. The entity expects that the market value of the benefits at each membership level, if quantifiable, should broadly equate to the membership fees

It is noted that gifts from donors are made to the entity or its gift fund directly and are held solely in the accounts established for these purposes, the moneys will be applied to further advance the public purposes of the entity generally, and that no part of the donations will be applied to fund the provision of the above membership benefits. It is also noted that the membership fees will be paid to a separate account to be applied to cover the costs associated with providing the membership benefits.

TR 2005/13 provides the following examples of the treatment of gifts in arrangements similar to the Associates Program:

Example 45

154. A performing arts organisation (a non-profit organisation) offers two levels of benefits to its patrons for different fees. For a fee of $1,000 the patron will be entitled to two free tickets, valet parking, access to preferential bookings, and two free tickets for a back-stage tour; and for a fee of $2,000 the patron will be entitled to the same benefits plus an additional three free tickets, two free tickets to rehearsals, and two tickets to complimentary intermission refreshments. A patron pays the $1,000 fee and also gives a further unsolicited $500 for which no benefits are provided. The $500 is a gift, but the $1,000 is not a gift.

Example 52

165. A performing arts organisation (a non-profit organisation) offers, through a vigorous advertising campaign, different levels of benefits for different payments it describes as 'donations'. For example, for a 'donation' of $1,000 the patron will be entitled to two free tickets, valet parking, access to preferential bookings, and two free tickets for a back-stage tour; for a 'donation' of $2,000 the patron will be entitled to the same benefits plus an additional three free tickets, two free tickets to rehearsals, and two tickets to complimentary intermission refreshments. The payments will not be gifts.

TR 2005/13 also provides the following examples, dealing more specifically with the solicitation of gifts, the expectation of benefits in return for gifts and the relevance of a material benefit associated with gifting, i.e.:

Example 50

162. D gives an unsolicited $500 to a performing arts organisation (a non-profit organisation), not as part of any patrons' program, and without expectation of any benefits being offered in return. Subsequently, in acknowledgement of D's generosity, he is invited to a dress rehearsal, a function to meet cast and artistic staff, and to interval refreshments for the season's performances. The $500 is a gift. While the benefits offered resulted from the benefaction conferred on the non-profit organisation, they were not anticipated by D when the transfer was made. Because there is no link in the relevant sense between the benefit and the transfer, the benefits are not considered material in relation to the transfer.

Example 54

170. M gives $5,000 to the public fund (a non-profit organisation) of a performing arts organisation under its patrons' program for the 2004 season. Under the program those who give $5,000 or more to the non-profit organisation are offered a free copy of the organisation's newsletter, access to a private lounge during interval for the season's performances (but no free refreshments), a priority booking service, invitations to attend dress rehearsals and acknowledgment of their generosity in the newsletter. Whilst the benefits are offered as part of the patrons' program, they are not considered material in view of the kind of benefits offered and their value in relation to the amount of $5,000 transferred. M has made a gift to the non-profit organisation.

Example 55

171. An arts organisation arranges an Information Evening to gain support for the upcoming season. It invites past and potential donors (including a number of members of its patrons' program for the previous year), members of the cast, executives of the organisation, dignitaries and other people interested in supporting the arts. At the function, videos of past performances are shown, the cast gives a performance, and dinner and refreshments are provided. Attendees are encouraged to sign up to buy season-tickets, to become part of the patrons' program for the coming season, or to make large donations to provide funding for the coming year's activities. The deductibility of the donations made by patrons to support the previous season is not affected by the provision of this Information Evening. While the benefits provided were significant, they lack a sufficient link with the earlier donations. The benefits were not offered as part of, or in connection with, the previous year's patrons' program, and there was no expectation of these benefits when the gift was made. The benefits of the Information Evening were not material to the gift.

With regard to the Program, membership is by invitation only after donors have made gifts above relevant thresholds. These invitations are not automatically issued, the number and type being determined by the entity based on certain factors. These features of the Program coupled with the requirement that donors pay a membership fee in order to gain access to certain benefits associated with the membership indicate the payment of the gift is not referable to any subsequent access to the Program.

With regard to paragraph 163 of TR 2005/13, while it is considered that the various classes of membership benefits under the Associates Program that are offered are an incentive to elicit gifts of various amounts from prospective donors (and these benefits themselves are not immaterial), any benefits attributed to the donor arise only as a result of an invitation to join the Program, and payment of a separate membership fee.

In view of the structure of the Program and the associated membership fees, it is considered that the potential invitation to join the Program does not represent the receipt of a material benefit or advantage by the donor.

This requirement is therefore met.

Conclusion

In summary, it is accepted that:

· the incentive offered in connection with the solicitation for gifts is the opportunity to be invited to become a member of the Program;

· the making of the relevant donation does not create any rights or confer any benefits or entitlement to the donors in relation to the Program;

· donors may become members of the Program only if they decide to join and pay the associated membership fees; and

· all costs associated with the provision of the membership benefits under the Program are separately and sufficiently referable to the membership fees.

The entity, as a non-profit organisation, can therefore provide a receipt for a tax deductible donation where a gift is otherwise made by a donor and a donor may in certain circumstances be given an opportunity to join the proposed Program (irrespective of whether the donor decides to pursue that opportunity or not).

It should be noted that the payment of membership fees to the Program will not be considered to be gifts for the purposes of Division 30 of the ITAA 1997.