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Ruling

Subject: Deductible gift recipient

Question 1:

Would the deductible gift recipient (DGR) status of the Fund under paragraph 30-125(2) of the Income Tax Assessment Act 1997 (ITAA 1997) be affected if money from the Fund is used to pay for the paving slabs to be used as part of a fundraising project?

Answer 1:

No.

Question 2:

Can the Fund issue receipts pursuant to subsection 30-228 of the Income Tax Assessment Act 1997 (ITAA 1997) for the payments made by the donors who would be acknowledged by a paving slab with the donor's name and personal message?

Answer 2:

Yes.

This ruling applies for the following period:

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commences on:

1^st July 2012

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The School operates a school building fund (the Fund) which is endorsed as a deductible gift recipient (DGR) under paragraph 30-125(2) of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it is a school building fund under item 2.1.10 of subsection 30-25 of ITAA 1997.

The School wishes to run a fundraising project (the Project) to raise money for the Fund. Families from the school and members of local community will be invited to donate to the Fund. The promotional material will state that donations over $X will be acknowledged by a paving slab engraved with the donor's name and a personal message. The paving slab will be laid within the school grounds, but not within the school building. The school grounds are fully renovated and the paving is simply for the purpose of the fundraising project. The total costs of the slabs will be approximately $Y.

Relevant legislative provisions:

Draft Taxation Ruling TR 2011/D5

Income Tax Assessment Act 1997, item 2.1.10 of subsection 30-25

Income Tax Assessment Act 1997, paragraph 30-125(2)

Income Tax Assessment Act 1997, subsection 30-228

Taxation Ruling TR 2005/13

Reasons for decision:

Question 1:

Summary

The deductible gift recipient (DGR) status of the Fund under paragraph 30-125(2) of the Income Tax Assessment Act 1997 (ITAA 1997) would not be effected if money from the Fund is used to pay for the paving slabs to be used as part of a fundraising project.

Detailed reasoning

Under paragraph 30-125(2) of the ITAA 1997, one of the requirements for an entity to be entitled to be endorsed as a DGR is that the fund that the entity operates is described in a DGR category set out in item 1, 2 or 4 of the table in subsection 30-15 of the ITAA 1997.

As the Fund is endorsed as a school building fund under item 2.1.10 of subsection 30-25 of ITAA 1997, the Fund must satisfy all the requirements for a school building fund. Paragraph 8 of the Draft Taxation Ruling TR 2011/D5 Income tax: school or college building funds sets out the requirements for school building fund:

· the fund must be a public fund established and maintained solely for the acquisition, construction or maintenance of a school building; and

· the building for which the fund is established and maintained must be sued, or it must be intended that it will be used, as a school by a government, a pubic authority or a non-profit society or association as described in Item 2.1.10.

The issue on whether the Fund can use its funds to pay for the paving slabs which would be used as part of the Project relates to the first requirement on whether the fund is used for the acquisition, construction or maintenance of a school building.

Specifically, paragraph 53 and 54 of the TR 2011/D5 discuss what type of fund administration costs are considered to be an acceptable charge against the fund:

53. Administration costs that are an acceptable charge against the fund are limited to costs paid in an arms length transaction specifically and solely to establish or maintain the fund (and for no other purpose). These include:

· direct costs of establishing or promoting the fund, such as advertising costs;

· direct costs of operating the fund, such as bank charges, stationery costs and accounting and audit fees relating specifically to the fund;

· fees paid for professional direction of a planned giving or fundraising program specifically for the fund; and

· the remuneration of a fund administrator specifically to administer the fund.

54. Fund administration costs that are not acceptable and must not be disbursed from a school building fund include general administration costs that the school would incur regardless of the existence or otherwise of the fund.

As per information provided, the paving slabs are purely for the Project to engrave the donor's name and a personal message. The area in which the paving slabs would be laid is within school grounds which are fully renovated already. Therefore, the costs of the paving slabs would not otherwise be a general administration cost for the school.

As such, the costs of the paving slabs are considered to be acceptable fund administration costs. Therefore, the Fund's DGR status would not be affected by using the Fund's money to pay for the paving slabs.

Question 2:

Summary

The Fund can issue receipts pursuant to subsection 30-228 of the Income Tax Assessment Act 1997 (ITAA 1997) for the payments made by the donors who would be acknowledged by a paving slab with the donor's name and personal message.

Detailed reasoning

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 laws 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 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 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 deductible gift recipient (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. 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.

Under the Project, the donors will transfer money in the form of payments to the Fund. As a result, the Company will receive the benefits in the form of money when the actual transfers of payment occur. This requirement is satisfied.

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 Project, the money transferred to the Fund will be transferred voluntarily and will not be made for made for consideration or prior obligation. This requirement is satisfied.

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 donors who transfer money to the Fund intend to benefit the Fund without any countervailing detriment arising from the transfer. Therefore, the money transferred to the Fund is considered to 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'.

Paragraph 42 and 43 of TR 2005/13 provides the following explanation:

It is a question of fact in each case whether any benefit or advantage is considered material. A benefit or advantage can be material if there is a link between the benefit and the transfer, and the benefit is sufficiently significant in relation to the value of the transfer.

Each of these is not a material benefit or advantage:

one that has no link with the transfer;

one that is mere public recognition of the giver's generosity; or

Paragraph 44 of TR 2005/13 states that some circumstances may lead to a conclusion that a benefit or advantage is material such as if the public recognition is for the purposes of commercial advertising for the donor.

Paragraph 189 of TR 2005/13 further states:

However, where an obligation is imposed that requires substantial expenditure on the part of the DGR to accord public recognition in relation to the amount transferred, the essential element of conferring benefaction would be absent…Nonetheless, the usual modes of according public recognition for the donation such as plagues on an honour board, and named bricks in a wall or path that involve minimal expenditure by the DGR will not disentitle a deduction for the giver.

Under the Project, the individual donors who donate more than $X will be acknowledged by a paving slab engraved with the donor's name and a personal message. The paving slab is considered to be a form of public recognition with no intention of commercial advertising. The cost of the paving slabs will be approximately $Y which is considered to be a minimal expenditure as compared to the required $X minimum donation.

In addition, the Project is also similar to example 63 under paragraph 188 of the TR 2005/13 where acknowledgement by engraving the donor's name on a permanent plague does not constitute as a material benefit or advantage to the donor. Therefore, the public recognition under the Project is not considered to be a material benefit or advantage to the donor.

As such, the payments made by the donors who would be acknowledged by a paving slab are considered to be gifts and the Fund can issue receipts pursuant to subsection 30-228 of ITAA 1997.