Edited version of your written advice

Authorisation Number: 1012938394993

Date of advice: 22 January 2016

Ruling

Subject: Income Tax

Question 1

Can the Organisation issue a receipt for a gift that is tax deductible under section 30-15 of the Income Tax Assessment Act 1997 for donations made by donors through an agent, under the terms of a valid and executed payment direction deed?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

In the year ended 30 June 20XX

Relevant facts and circumstances

1. The Organisation was formed by the merging of two similar organisations, one of which is a registered public benevolent institution (PBI) endorsed as a deductible gift recipient (DGR).

2. The Organisation is registered as an Australian public company limited by guarantee.

3. The Organisation is a PBI, endorsed as a DGR.

4. The Organisation continues to carry on the activities of the merged organisations with the exception of one part of the operations.

5. The Organisation runs a program that assists people in need in the community.

6. The program involves a series of arrangements between the different parties. As part of the program, participants may make donations to the Organisation.

7. It is proposed that instead of cash donations being made directly to the Organisation, the donor will enter into a payment direction deed (Deed) with an agent.

8. Under the Deed, the agent will deduct amounts nominated as gifts from amounts owing to the donors under the program and pay them directly to the Organisation.

9. A gift made by a donor is not directly connected to any particular participant in the program. The gift received by the Organisation becomes part of the general pool of funds used to finance the operations of the Organisation. The donor has no control over how the funds will be deployed by the Organisation.

10. Documents have been provided which detail the obligations of the parties.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 30-B

Income Tax Assessment Act 1997 section 30-15

Income Tax Assessment Act 1997 subsection 30-45(1)

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

Reasons for decision

Summary

Donations made to the Organisation by donors through an agent under the terms of a valid and executed payment direction deed are gifts for the purposes of section 30-15 of the Income Tax Assessment Act 1997 (ITAA 1997). The Organisation may issue a receipt for a tax deductible gift for the donations.

Detailed reasoning

Deductible gift recipients (DGR) may issue a receipt for tax deductible gifts they receive. The receipt must include information specified in subsection 30-228(1) of the ITAA 1997, namely, the receipt must state the name and ABN of the deductible gift recipient and the fact that the receipt is for a gift.

A receipt can only be issued for amounts that are a true gift and described in a relevant item of the table in section 30-15 of the ITAA 1997.

What is a gift

The word 'gift' is not defined in the ITAA 1997. The ordinary meaning of the word 'gift' has been applied in case law and is discussed in Taxation Ruling TR 2005/13 Income tax: tax deductible gifts - what is a gift.

A payment is a gift if it has all the following characteristics:

• The donor transfers money or property.

• The donor makes the transfer voluntarily.

• The transfer arises by way of benefaction.

• The donor does not materially benefit from the gift.

These characteristics are not absolute and may involve a matter of degree. In determining whether a transfer is a gift it is necessary to consider the whole set of circumstances that provide context and explanation for the transfer.

Transfer of money or property

The making of a gift to a DGR involves the transfer of a beneficial interest in property to that DGR.

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 transferred to the DGR.

For there to be a tax deductible gift, the giver must have proprietary rights in the property just prior to its transfer. When money or property is transferred to the DGR, the DGR must receive full title, custody and control of the property so that the DGR is entitled to deal with the property in its own right.

The transfer may still be a gift when it is made by way of an agent. In an agency relationship, an agent has an authority or capacity to create or affect legal relations between a principal and third parties. Generally speaking, what a person may do themselves, the person may do by an agent (International Harvester Company of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Co (1958) 100 CLR 644; 32 ALJ 160; [1958] HCA 16; Petersen v Moloney (1951) 84 CLR 91; 25 ALJR 566; [1951] HCA 57. Christie v Permewan, Wright & Co Ltd (1904) 1 CLR 693; [1904] HCA 35.) If an agent discloses his principal's name (or at least the existence of a principal) to the third party with whom he is dealing, the agent himself is not normally entitled to the benefit of, or be liable on, the contract (Law, J [Online] 2015 A Dictionary Of Law (8 ed.), Oxford University Press).

Therefore, an agent does not have beneficial interest in the property being transferred.

TR 2005/13 provides the following example at paragraph 80:

L hands over a computer to a DGR, on the basis that it will simply act as her agent in passing the computer on to a particular school which is not a DGR. The DGR agrees to the condition and passes it on to the school. While L has physically handed over the computer to a DGR, there is no transfer of beneficial interest in the computer to the DGR.

Transfer made voluntarily

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. Nonetheless, a transfer, which, has the other attributes of a gift will not fail to be considered a voluntary transfer merely because the means used to give effect to the benefaction have contractual or similar features.

TR 2005/13 provides the following example at paragraph 104:

W voluntarily enters into a deed of gift to transfer five yearly instalments of $2,000 to be paid to a DGR on 30 June each year. Despite having the obligation to make the five $2,000 instalments, they are gifts when paid to the DGR. The decision to enter into the deed of gift was voluntary, and no consideration was received by W in respect of the transfer.

Arises by way of benefaction

A gift should intend and confer benefaction on the recipient. Benefaction means that the DGR is advantaged materially without any detriment arising from the terms of the transfer.

A gift usually proceeds from detached and disinterested generosity. Where a giver gives a gift for self-interested commercial or fiscal reasons it contradicts any objective to confer benefaction.

A motive of seeking a tax deduction does not, by itself, disqualify a transfer from being a gift.

Does not materially benefit the donor

To constitute a gift, the giver must not receive any material benefit or advantage from the transfer.

The proposed arrangement

Under the proposed arrangement, participants can make a donation of money to the Organisation under the terms of the payment direction deed (the Deed).

Under the terms of the Deed, the donor directs an agent to deduct a specified donation amount from each payment owing to them under the program and pay it directly to the Organisation. The Organisation will then issue a receipt to the donor for the donation.

The Deed effectively authorises the agent entity to make the donation on the donor's behalf. In this way the donation is made through an agent. Nothing prevents a transfer from being a gift where it is made through agent, as long as the beneficial interest remains with the donor just prior to the transfer and beneficial interest transfers to the DGR, not the agent. This is the case with the proposed arrangement.

The agent entity deals with the payment owning to donor under the program, as agent in behalf of the donor. Therefore, the donor retains beneficial interest in the money just before it is paid to the Organisation. When the money is transferred, the Organisation has full beneficial ownership and control of the money.

Under the terms of the Deed, the Organisation has absolute discretion on how the donated amount may be used, consistent with its purposes. The amount does not have to be used for particular participants in the program. It forms part of the general funds of the Organisation used to finance the operations of the Organisation.

The gifts will only be deductible when the donation amount has actually been transferred to the Organisation by the agent. To be clear, the agent is not acting as an agent for the Organisation in collecting donations, but rather it is acting as agent for the donor. Therefore, the gift is made by the donor when the agent transfers the donation amount to the Organisation. At this point, the Organisation may issue a receipt for the gift.

Even though the arrangement for the donation has a contractual nature, the donation is still voluntary. A donor is under no obligation to enter into the payment direction deed and the Deed is revocable. The Deed does not constitute an ongoing promise to make donations to the Organisation. The donor voluntarily enters into the Deed. Therefore, the donations made are still voluntary gifts.

The donation also exhibits other characteristics of a gift. The donation is a simple transfer of money which materially benefits the Organisation with no detriment. There is little commercial reason to provide the donation. Most donors participate in the program with the objective of 'making a difference', benefitting needy persons in the community who the Organisation aims to assist. The donation has no link with fees owing to the agent as such fees are required and paid under the terms of a different contract. Additionally, the donor has the right to receive payment under the program, which is payable irrespective of whether the donor decides to make a gift or not. Therefore, the gift confers benefaction to the Organisation and the donors receive no material benefit in return.

Considering the circumstances and context of the donation, on the whole it has the characteristics consistent with a gift. There is a transfer of beneficial interest in the donation amount from the donor to the Organisation (even though an agent is used to make the transfer), the donor voluntarily enters into an agreement to make the donation and benefaction is conferred to the Organisation by the donation with no material benefit to the donor.

Gift is tax deductible

A gift will be tax deductible under section 30-15 of the ITAA 1997 where it is made to an institution covered by an item in any of the tables in Subdivision 30-B of the ITAA 1997. This includes registered PBIs described in item 4.1.1 of the table in subsection 30-45(1) of the ITAA 1997.

The Organisation is currently registered as a PBI and endorsed as a DGR. Any gifts made to the Organisation while it remains a registered PBI and endorsed as a DGR will be tax deductible.

Conclusion

The proposed arrangement does not prevent the donation from being a gift to for the purposes of section 30-15 of the ITAA 1997. The Organisation may issue a receipt for a tax deductible gift to the donors for the donation amounts.