Edited version of your written advice

Authorisation Number: 1012824503760

Date of advice: 17 June 2015

Ruling

Subject: Gift Receipts

Question 1

Can the Entity issue a deductible gift receipt pursuant to subsection 30-228(1) of the Income Tax Assessment Act 1997 (ITAA 1997) for a donation of Barter credits?

Answer

Yes.

This ruling applies for the following periods

1 May 2015 to 1 May 2020

The scheme commences on

1 May 2015

Relevant facts and circumstances

The applicant is endorsed as a deductible gift recipient (DGR).

A potential donor has contacted the applicant to donate Barter Credits which will assist a building project. The Entity has opened a Barter account and has provided a copy of a monthly statement. The potential donor can donate Barter Credits into the Entity's account.

The applicant has provided a copy of the terms and conditions.

The applicant has advised that the donor will not receive any material advantage from donating the Barter credits.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 30-55

Income Tax Assessment Act 1997 subsection 30-228(1)

Income Tax Assessment Act 1997 section 50-5

Income Tax Assessment Act 1997 section 30-15

Income Tax Assessment Act 1997 section 30-212

Reasons for decision

Summary

As specified in subsection 30-228(1) of the ITAA 1997 a deductible gift recipient (DGR) may issue a receipt for a gift.

Barter credits transferred to the applicant will be a gift. The applicant may therefore issue a receipt pursuant to subsection 30-228(1) of the ITAA 1997 to a donor who transfers Barter credits to the applicant. The Barter credits are treated as a gift of property.

Detailed Reasoning

Subsection 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.

What is 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 (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:

…it 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.

The proposed donation of Barter credits will be a gift because the transaction will have the characteristics of a gift as described in TR 2005/13 and as discussed below.

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.

Under the Barter system, the donor will transfer the Barter credits to the applicant's account. As a result, the applicant will receive tradeable benefits in the form of the Barter credits when the actual transfer occurs.

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 Barter system, the Barter credits transferred to the applicant will be transferred voluntarily, i.e. the transfers are not made for consideration nor because of a prior obligation imposed on the giver by way of statute or 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 (Leary) 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 in Leary 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 potential donor who will transfer Barter credits to the applicant intends to benefit the applicant. There will also not be any countervailing detriment arising from the transfer for the applicant. Therefore, the Barter credits transferred to the applicant through the Barter transaction 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 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.

The potential donor will not receive any benefit or advantage from the applicant upon the transfer of the Barter credits, as advised by the applicant, therefore, no material benefit or advantage will be received by way of return to the donor from the applicant.

Type of gift

Section 30-15 of the ITAA 1997 states you can claim a deduction for gifts in certain situations as specified in the table. In relation to allowing a deduction for gifts to a fund, authority or institution covered by an item in any of the tables in Subdivision 30-B, item 1 of the table in section 30-15 of the ITAA 1997 provides the following types of gifts:

A gift of:

(a) money; or

(b) property (including *trading stock) that you purchased during the 12 months before making the gift; or

(c) an item of your trading stock if:

• the gift is a disposal of the item outside the ordinary course of your *business; and

• no election has been made, or is made, in relation to the item under Subdivision 385-E (about electing to spread or defer profit from the forced disposal or death of *live stock); or

(d) property valued by the Commissioner at more than $5,000; or

(e) *shares that you have acquired in a *listed public company if:

• the shares are listed for quotation in the official list of a stock exchange that is listed under the heading "Australia" in regulations made for the purposes of the definition of *approved stock exchange; and

• the *market value of the shares on the day you made the gift is $5,000 or less; and
you acquire the shares at least 12 months before making the gift.

Is a Barter credit money or property?

The ITAA 1997 does not provide a definition of 'money' or 'property'. The Encyclopaedic Australian Legal Dictionary provides a definition of money:

Any generally accepted medium of exchange for goods, services, and the payment of debts. Examples are coin, banknotes, bills of exchange, promissory notes and claims on bank deposits: for example (NSW) Stamp Duties Act 1920 s3. Money confers complete liquidity on its holder. It serves as a medium of exchange, a measure of value, a standard for deferred payments, a store of value, and a commodity whose worth depends upon its resale value.

Banking and Finance

That which passes freely from hand to hand throughout the community in final discharge of debts and full payment for commodities, being accepted equally without reference to the character or credit of the person who receives it to consume it or apply it to any other use than in turn to tender it to others in discharge of debts or payment for commodities: Moss v Hancock [1899] 2 QB 111 at 116. In its strict legal sense it includes money in a deposit account at a bank: Re Collings [1933] Ch 920.-

The Encyclopaedic Australian Legal Dictionary provides a definition of property:

Any type of right (that is, a claim recognised by law), interest, or thing which is legally capable of ownership, and which has a value: for example, Doodeward v Spence (1908) 6 CLR 406 ; 15 ALR 105 ; [1908] HCA 45 ; Cmr of Stamp Duties (Qld) v Donaldson (1927) 39 CLR 539 ; [1927] HCA 30 . Colloquially, `property' is used to refer to the thing itself, although in some circumstances it may be taken to have both meanings: Minister for the Army v Dalziel (1944) 68 CLR 261 ; [1944] ALR 89 . Property is either real or personal. Interests that are less than ownership may also be property. For example, an incorporeal right such as an easement is a property interest...The word `property' includes in some contexts money and the right (under statute or the general law) to receive a payment of money: Australian Tape Manufacturers Assn Ltd v Commonwealth (1993) 176 CLR 480 ; 112 ALR 53 ; [1993] HCA 10 ...

There is no case law which addresses whether a barter credit is money or property. This matter is only mentioned in passing. For example, in Humphris (liq Midcharm Pty Ltd)(in liq) v Jensol (1997) 79 FCR 32, (a Corporations Law matter) Goldberg J stated:

…Midcharm had made arrangements for its customers to be able to pay part of their accounts by "barter" points. A barter points scheme involves a business, joining such a scheme, earning barter points by selling its products and services to fellow members of the scheme who pay in barter points. The barter points so earned can be spent purchasing products and services from other members of the scheme. Midcharm had entered into barter schemes or arrangements with a number of barter agencies. A list of eight barter agencies was tendered in evidence and Mr Jenshol said that Justice Telecommunications the business had dealt with each of them. There is no doubt that payments were made by customers using Telstra telecommunications facilities by way of barter points and that these barter points are property which belonged to Midcharm…

The ATO has considered whether bitcoin is treated as money in Taxation Determination 2014/25 Income tax: is bitcoin a 'foreign currency' for the purposes of Division 775 of the Income Tax Assessment Act 1997? (TD 2014/25).

Paragraph 24 of TD 2014/25 states:

24. It has been argued that bitcoin satisfies the ordinary meaning of money because on a functional approach it satisfies three essential elements for money because it serves as (1) a medium of exchange, (2) a unit of account, and (3) a store of value. In addition, it is argued that there is widespread usage and acceptance of bitcoin in the community as a means of discharging debts and making other payments, and accordingly bitcoin's increasing acceptance has now reached the point that it qualifies as 'money'. This later point is very much a question of fact and degree. The evidence available to the Commissioner informs the view that the current levels of use and acceptance of bitcoin within the community is far short of what may be regarded as sufficient or necessary to satisfy the test in Moss, nor is it a generally accepted medium of exchange as per Travelex. Accordingly, bitcoin does not satisfy the ordinary meaning of money.

Paragraph 34 of TD 2014/25 states:

34. As bitcoin is not a foreign currency, Division 775 does not apply and transactions involving bitcoin give rise to the same tax consequences as other barter transactions.

Paragraph 12 of Income Tax Ruling IT 2668 Income Tax: Barter and Countertrade Transactions (IT 2668) states:

12. …The consideration from a barter transaction would, in most cases, be in the form of money's worth (either inherently or as a result of section 21 or section 21A of the Act deeming the consideration to be convertible to cash). The consideration from a countertrade transaction (credit units) would fall within the form which can be employed in the acquisition of some other right or commodity.

Barter credits are not liquid. Both parties to a transaction need to be members of the Barter system before a transaction can be completed using the full value of the credits. Liquidity is further limited as a member will not be able to make use of the credits until he finds another member who will provide the goods or services he requires.

A Barter credit represents a right to a value of goods or services which another member of the Barter system may provide. Ownership of that right and the value to each member is represented in the registration of credits kept by the organisation.

It is considered that Barter credits are not money. Barter credits conform to the meaning of property.

How much can be deducted?

Item 1 of the table in section 30-15 of the ITAA 1997 also provides a rule for the amount of the deduction where the gift is property. Column three of that item states how much can be deducted when a donation of property is made. This is:

(b) if the gift is property (except trading stock covered by paragraph (c), property covered by paragraph (d) or shares covered by paragraph (e) - the lesser of the market value of the property on the day you made the gift and the amount you paid for the property.

(d) if the gift is property valued at more than $5,000 and you did not purchase the property during the 12 months before making the gift - the value of the property as determined by the Commissioner.

Paragraph 15 of IT 2668 provides the ATO view on the valuation of consideration arising from barter or countertrade transactions for the purposes of determining assessable income and allowable deductions under the general provisions (section 6-5 and section 8-1 respectively) of the ITAA 1997:

…in the case of a business-oriented countertrade organisation, this Office will deem the fair market value of each of their credit units to equal one Australian dollar unless it can be shown that the organisation's credit units are being traded consistently at a different value.

Have the Barter credits been purchased within the last twelve months?

As stated above, if the property donated has a value of less than $5000, the property has to have been purchased by the donor in the last twelve months in order to gain a deduction under item 1 of section 30-15 of the ITAA 1997. The term purchase is wide enough to include acquisition as a result of the provision of goods or services. Barter credits received in return for the provision of goods or services have therefore been purchased for the purposes of section 30-15 of the ITAA 1997.

However, any Barter credits donated to a DGR that had been in the donor's possession for longer than twelve months would not give rise to a deduction (unless the value of the Barter credits donated is greater than $5000). Therefore, where the donor has not used his account with the barter organisation during the twelve months prior to making the donation and the donation is less than $5000, it is clear then, that no deduction is available to the donor.

Where the donor has used their Barter account during the twelve months prior to making the donation they have accepted to have used their credits on a first in first out basis.

Gifts of property valued by the ATO at more than $5,000

Property purchased outside twelve months and valued by the Commissioner at more than $5,000 can qualify as a deductible gift.

As stated above, Item 1 of section 30-15 of the ITAA 1997 at column three states:

(d) if the gift is property valued at more than $5,000 and you did not purchase the property during the 12 months before making the gift - the value of the property as determined by the Commissioner.

Item 1 of section 30-15 of the ITAA 1997 at column four states:

(d) if the property is to be valued by the Commissioner - the requirements of section 30-212 are satisfied.

Section 30-212 of the ITAA 1997 states:

SECTION 30-212 Valuations by the Commissioner

30-212(1)

If you make a gift or contribution that is covered by a provision of this Division that refers to the value of property as determined by the Commissioner, you must seek the valuation from the Commissioner.

30-212(2)

The Commissioner may charge you the amount worked out in accordance with the regulations for making the valuation.

Please note it is up to the donor to find out the value of the gift.