Edited version of your written advice

Authorisation Number: 1013049804301

Date of advice: 11 July 2016

Ruling

Subject: Issue of receipts by a Deductible Gift Recipient

Question 1

Can the Entity issue a receipt pursuant to section 30-228 of the ITAA 1997 on the basis that it has received a gift of money of $2 or more per item 1 of the table in section 30-15 of the ITAA 1997 for the gifts that it receives under the proposed program?

Answer

Yes

This ruling applies for the following periods:

1 July 2015 to 30 June 2016

1 July 2016 to 30 June 2017

1 July 2017 to 30 June 2018

1 July 2018 to 30 June 2019

1 July 2019 to 30 June 2020

1 July 2020 to 30 June 2021

1 July 2021 to 30 June 2022

1 July 2022 to 30 June 2023

1 July 2023 to 30 June 2024

1 July 2024 to 30 June 2025

The scheme commences on: 1 July 2015

Relevant facts and circumstances

• The Australian Charities and Not-For-Profit Commission's register shows the entity as being a Public Benevolent Institution (PBI)

• The Entity has been endorsed as a Deductible Gift Recipient (DGR) since 2000

• The Entity is covered under item 1 of the table in section 30-15 of the ITAA 1997

• The Entity undertakes all its activities in Australia

Existing program

• The entity runs a donation program

• A donor contacts the Entity to advise them that they wish to donate the proceeds of sale of their donation to the Entity

• The Entity submits a copy of the registration form that the donor completes showing that the donor appoints XX as their agent and authorises XX to sell their donation and direct the proceeds of the sale to the Entity

• XX collects the donation from the donor and auctions the donation. 100% of the proceeds of sale are forwarded to the Entity

• A donor who is auctioning a donation with an estimated value of more than $1,000 can set a reserve price. If the reserve is not met at auction the first time, it will auction without reserve at the next auction

• XX pays for the costs of transporting the donation to the auction house and waives its commission fee on the sale of the donation

• XX does not claim a deduction for the proceeds of sale that it distributes to the Entity

• The Entity treats the gift from the donor as a gift of money and issues a receipt pursuant to section 30-228 of the ITAA 1997 and in accordance with the rules set out in 1 of the table in section 30-15 of the ITAA 1997

Proposed program

• The Entity runs a donation program;

• A donor will contact the Entity to advise them that they wish to donate the proceeds of the sale of their property

• The Entity will provide the donor with a copy of the online form for the donor to complete, resulting in the appointment of the Entity as an agent to sell the property on behalf of the donor

• the donor authorises sales proceeds realised on the sale of the property to be donated to the Entity on the donor's behalf

• The Entity arranges for the collection of the property

• The Entity, as the agent for the donor, will arrange for the sale of donated property on behalf of the donor either directly or via a remarketer such as XX

• the sale may be by way of auction, or public or private sale, as it is authorised to do so on behalf of the donor

• the donor is the property's pre-sale owner

• The donor can change their mind regarding the donation up to sale of the donation

• The owner will retain ownership and property in the donation until such time as the purchase price has been paid in full

• The Entity will expand the program to include other items being sold with the cash proceeds donated by the donor to The Entity

• The Entity will broaden the range of entities it deals with for the disposal of donations, for example, selling directly to salvage merchants or directly to private buyers. It may or may not deal with other remarketing service providers. In all cases sales proceeds will, ultimately, be donated to the Entity, on the donor's behalf

• The remarketer may, or may not, charge a fee to the Entity for costs incurred

• The Entity will negotiate any third party selling fees on an arms-length basis, as required

• It is expected the majority of donors will be members of the general public. From time to time dealers (for whom the property would be trading stock) may also make donations to the Entity

• The Entity will treat the gift from the donor as a gift of money and will issue a receipt pursuant to section 30-228 of the ITAA 1997 and in accordance with the rules set out in 1 of the table in section 30-15 of the ITAA 1997 provided that the value of the gift is $2 or more.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 30-15

Income Tax Assessment Act 1997 subsection 30-228

Income Tax Assessment Act 1997 subsection 70-10(a)

Reasons for decision

Issue 1

Donation program of a Deductible Gift Recipient

Question 1

Can the Entity issue a receipt pursuant to section 30-228 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that it has received a gift of money of $2 or more per item 1 of the table in section 30-15 of the ITAA 1997 for the gifts that it receives under the proposed program?

Summary

Under the Proposed program, the Entity receives a gift of money from the donor. This occurs as at the time the Entity receives full title of the gift, it is in the form of money. When the Entity issues a receipt for the gift it can specify that it is for a gift of money and the value of the gift is equal to the amount received.

Detailed reasoning

When a deductible gift recipient receives a gift and issues a receipt for tax deduction purposes, section 30-228 of the ITAA 1997 sets out what must be included on the receipt. It states:

If a deductible gift recipient issues a receipt for a gift described in the relevant item of the table in section 30-15 to the fund, authority or institution, the deductible gift recipient must ensure that the receipt states;

(a) the name of the fund, authority or institution; and

(b) the ABN (if any) of the deductible gift recipient; and

(c) the fact that the receipt is for a gift.

In addition the publication GiftPack (NAT 3132) outlines additional information that could be included on the receipt that would be useful to donors. They are:

• the amount of money donated

• a description of any gifts of property and

• the date of the gift.

Item 1 of the table in section 30-15 of the ITAA 1997 outlines the type of gifts that can be received. They include money, property purchased during the 12 months before the gift was made and property valued at more than $5,000. Property has a wide meaning. As well as physical things, it includes rights and interests that are capable of ownership and have a value.

In order to assist them prepare their receipts, the Entity is seeking confirmation that the gifts received under the proposed program are gifts of money. This can be determined by considering the features of a gift.

In Taxation Ruling TR 2005/13 Income tax: tax deductible gifts - what is a gift the characteristics or features that are attributable to a gift are described. They are;

• that 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.

If a transfer fails one or more of these attributes, the transfer will not be ordinarily considered as a gift.

There are, however, additional guidelines covering donations of trading stock.

Subsection 70-10(a) of the ITAA 1997 states that trading stock is anything produced, manufactured or acquired that is held for the purposes of manufacture, sale or exchange in the ordinary course of business.

Donations to the Entity may include trading stock of a business, these are considered gifts but only if two conditions are met:

• the gift is a disposal of the trading stock outside the ordinary course of the donor's business, and

• if the gift involves the forced disposal or death of livestock - no income tax election has been made to spread or defer the profit.

For this gift type, it is not necessary for the trading stock to have been purchased during the 12 months before the gift was made.

The value of the gift is the market value of the trading stock on the day the gift was made.

The donor may also need to include the market value in assessable income under the general rules for income tax. For trading stock disposed of as a gift outside the ordinary course of business, the stock's market value is normally included in the donor's assessable income.

For donors who are registered for GST or required to be registered, the amount that would otherwise be the market value is reduced by an amount equal to the GST credit (if any) to which the donor would have been entitled if:

• the donor had acquired the property at the time the gift was made, and

• the acquisition had been solely for a creditable purpose.

Donors who are not registered for GST, and are not required to be registered, do not need to adjust the market value.

To meet the characteristics attributable to a gift it must involve the transfer of beneficial interest in property to that DGR. As outlined in paragraphs 18 and 19 of TR 2005/13:

For there to be a transfer, the property that belonged to the giver must become the property of the DGR. A gift is effectual only where the giver has 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.

…

If the DGR fails to obtain immediate and unconditional right of custody and control of the property transferred, or less than full title to the transferred property is transferred, a gift deduction will not arise.

Under the existing program, instead of the donor transferring legal ownership of the donation to the Entity, they appoint XX to sell their donation on their behalf. Whilst they still retain ownership of the donation they have the right to set a reserve at auction (so long as the donation has a value of $1,000 or more). Once the donation is sold, XX, under the direction of the donor, transfers the proceeds of sale to the Entity. At the point in which the Entity obtains immediate right of custody and control of the gift, it is in the form of money. Therefore, under the existing program, the donor is donating money to the Entity.

Under the proposed program the Entity will accept property as donations. The donor retains ownership and can change their mind regarding the donation up to the sale. An owner of a donation will retain ownership until the purchase price has been paid in full

The Entity may also accept donations from dealers (for whom the property would be trading stock). The donation remains the property of the pre-owner. The donor appoints the Entity to act as their agent and authorises the direction of the sale proceeds to the Entity on their behalf. The Entity will then arrange for the property to be sold on behalf of the donor. The Entity will use the services of a remarketer or other entities if appropriate. Under the proposed program it is evident that the donor makes a donation of property and once made the Entity has a beneficial interest in the property.

In relation to the remaining three features of a gift, these features are also evident in donations made under the proposed program. That is;

• the donation is made voluntarily

• there is a benefit that is provided to the DGR, and

• the donor does not receive a material benefit or advantage in return.

The Entity can issue a receipt for a gift under the proposed program. On the receipt, it can state that it has received a gift of money and list the value of the gift as the amount of money that it has received.