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Ruling

This ruling applies to the applicant rulee

Subject: Income Tax- deductible donation

Question 5 of the ruling application

Can the Rulee issue a deductible receipt pursuant to section 30-228 of the Income Tax Assessment Act 1997 (ITAA 1997) for the corresponding donation, being the amount paid by the donor purchaser, where the donor or a specified individual receives the bear (the Item)?

Question 6 of the ruling application

Can the Rulee issue a deductible receipt pursuant to section 30-228 of the Income Tax Assessment Act 1997 (ITAA 1997) for the corresponding donation, being the amount paid by the donor purchaser, where the donor directs the bear (the Item) to be given to an unidentified child in a hospital?

Advice/Answers

Question 5

No.

Question 6

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on:

1 July 2010

Relevant facts and circumstances:

The Rulee is currently endorsed as a Tax Concession Charity (TCC) and a Deductible Gift Recipient (DGR) on the basis of operating as a Health Promotion Charity (HPC).

As stated in the private ruling application, the Rulee raises funds through various fundraising activities to support its health promotion activities. These fundraising activities are currently outsourced to a Call Centre, which sell raffle tickets and merchandise, accept donations, and provide banking and direct mail services on its behalf.

The current ruling application relates to one of its fund raising activities through the sale of merchandise, under a specific program.

Under the Program, members of the public can participate in the purchase of an item or a number of items, by calling the Call Centre and completing the pledge form sent out by the Call Centre.

Once the donor agrees to participate in the Program, he or she is given the following choices:

- to have the Item to be donated to an unidentified child patient in a hospital, or

- to have the Item gifted to a specified individual, or

- to receive the Item directly.

If the donor chooses to have the Item to be donated to an unidentified child patient in a hospital, the Rulee would send the Item to an elected hospital which would then be given to certain patients.

The cost price of each Item is $ xxxx. All Items are priced at $xxxx, and GST of $xxxx is currently remitted to the ATO. This makes the price GST inclusive.

Assumptions

No assumptions were made. The ruling is based on the arrangement as described by the rulee.

Relevant legislative provisions

Income Tax Assessment Act 1997 30-45.

Income Tax Assessment Act 1997 30-228.

Relevant Rules and Determinations

Taxation Ruling TR 2005/13

Relevant Cases

Cypus Mines Corporation v FC of T (1978) 9 ATR 33

Federal Commissioner of Taxation v. McPhail (1968) 117 CLR 111 41 ALJR 346

Hodges v. FC of T 97 ATC 2158; (1997) 37 ATR 1091

Klopper & Anor v. FC of T 97 ATC 4179

Leary v FC of T 80 ATC 4438; (1980) 11 ATR 145; (1980) 32 ALR 221

Reasons for decision

Question 5:

Sub-section 30-228(1) of the ITAA 1997 states that if a 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.

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.

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.

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.

In this instance, the arrangement to deal with the item under the Program, satisfies three of the characteristics of a gift per paragraph 13 of TR 2005/13, as the donors would pay/transfer the pledged amount to the Rulee voluntarily and the Rulee would receive the benefit of this Program by obtaining that money.

However, the last characteristic is not satisfied as the potential donors will receive a benefit or advantage (an item or items) from the Rulee upon the transfer of the pledged amount. Therefore, a material benefit or advantage will be received by way of return to the donors from the Rulee.

Under the Program, once the donor agrees or pledges to purchase the Item, he or she becomes the beneficial owner of the Item and has right of custody and control.

The decision to deal with this purchased item and exercise the discretion/choice given how to deal with it and to whom be given or keep it, is an action and a gesture on behalf of the purchaser towards the end recipient of the item.

The payment to the Rulee by the donor is the agreed consideration under an arrangement between a seller (who happens to be endorsed as a DGR) and the buyer. Although the final decision rests with the donor and the donation/payment can be accepted to have been made voluntarily, it cannot be accepted to be an unsolicited gift, donation or contribution to the Rulee.

The Rulee's involvement in the process to fulfil its obligation to deal and deliver the purchased Item to the donor, or to a third party on behalf of the donor, does not alter the fact that the donor has ownership of the Item and the right to decide who receives the Item. It neither establishes the position that the rulee becomes the recipient of the item.

Question 6:

As discussed above, the Program satisfies the first three characteristics of a gift, but the main issue to consider is whether the donor is receiving a material benefit as a result of the Program.

The transaction where a donor pays an amount for the receipt of the Item, then giving the Item to an unspecified patient in a hospital is no different to the transaction where the donor chooses a specified patient to receive the item.

The transaction consists of the donor paying the pledge amount and receives a material benefit of the Item. In this transaction, a material benefit is clearly received by the donor and this transaction is simply a sale transaction where the Rulee sells the Item for a specified amount to raise funds. Therefore, the amount that the donor would pay for the Item in this part of the transaction is not considered to be a gift as material benefit will been received.

The decision /choice of the donor /purchaser, once it has obtained ownership of the item, to allow this item to be donated to an unidentified patient in a hospital is considered to be a gift from the purchaser to a patient in a hospital, and not an unsolicited donation of property to the rulee.

Upon the completion of the transaction through the passing of legal and beneficial ownership of the Item and the right to exercise a discretion that comes with it, it is conclusive a material benefit is received by the donor.

Therefore, the Item is not considered to be a gift that falls into the types of gift to a DGR that can be deductible as stated in TR 2005/13.

Conclusion

Question 5.

Where the donor or specified individual receives the item, the corresponding payment or donation as described by in the rulee's submission, is not considered to be a deductible gift and the recipient Rulee cannot issue a tax deductible receipt to the donor pursuant to section 30-228 of the ITAA 1997.

Question 6.

Where the donor receives the Item, the corresponding payment is not a gift for the purposes of Division 30 of the ITAA 1997 and the recipient Rulee cannot issue a tax deductible receipt to the donor pursuant to section 30-228 of the ITAA 1997.

Does Part IVA, or any other anti-avoidance provision, apply to this ruling?

No

Other relevant comments

No other relevant comments are made

Keywords

Income Tax Exemption

Not for Profit Charitable Institution

Deductible Gift Recipient as a Health Promotion Charity

Deductible Gifts

Fund raising program by a Deductible Gift Recipient organisation