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Ruling

Subject: Gift

Question:

Can the Company issue receipts pursuant to s30-228 of the Income Tax Assessment Act 1997 (ITAA 1997) for the payments made by donors under the new fundraising appeal ("the Appeal")?

Answer:

Yes.

This ruling applies for the following periods:

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commences on:

1 July 2012

Relevant facts and circumstances:

The Company is currently endorsed as a deductible gift recipient under section 30-125 of the ITAA 1997 on the basis that it is a public benevolent institution as set out in item 4.1.1 of the table in section 30-45 of the ITAA 1997.

The Company wishes to launch the Appeal to target new donors to generate long term fundraising income. The Appeal invites people to pay $50. In return, the donors will receive a certificate. The cost of the paper certificate will be lower than $2.

Relevant legislative provisions

Income Tax Assessment Act 1997 30-45.

Income Tax Assessment Act 1997 30-125.

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

AAT Case 12,314 Re 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

Subsection 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 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 considered the case authority on what constitutes a gift and stated:

The purport of these dicta is that 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 Appeal, each of the donors will pay $50 to the Company. As the Company will receive the benefits in the form of money when the actual payment occurs, it is considered that there will be a transfer of 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 Appeal, the money transferred to the Company will be transferred voluntarily and will not be made for consideration.

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.

Each of the donors who transfer money to the Company will intend to benefit it. There will also not be any countervailing detriment arising from the transfer for the Company. Therefore, the money transferred to the Company under the Appeal 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 11 ATR 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, at 11 ATR 159, 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 DGRs provide public recognition and acknowledgement to the donors. Paragraph 186 provides the following explanation:

The public recognition accorded to givers will commonly not be a material benefit. This includes mere acknowledgement in newsletters, annual reports, on a donors' board, and so on. As Bowen CJ said in Leary, 'a man may, by his gifts, gain fame or formal honours without losing his tax deductions'.

As discussed in the examples from paragraph 188 to 190 of the TR 2005/13, public acknowledgement and recognition for the givers' generosity by engraving their names on a plaque to be placed on the wall does not constitute a material benefit or advantage to the givers.

The Appeal attracts donors to participate in a fundraising appeal by donating $50 and in return, the donors will receive a certificate. Instead, it is quite clear that the certificate is only a form of recognition to acknowledge their participation and generosity. Similar to the 'engraving' examples, the provision of the certificate is simply to acknowledge the donors' generosity, and does not constitute as a material benefit or advantage.

Conclusion

As the donations from the Appeal will be gifts, the Company may issue receipts pursuant to subsection 30-228(1) of the ITAA 1997 to the donors.