Edited version of your written advice

Authorisation Number: 1013056649010

Date of advice: 20 July 2016

Ruling

Subject: Gift deduction

Are you entitled to claim a deduction for donating advertising space in your publication to a local community group?

Answer

No.

This ruling applies for the following periods

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commenced on

1 July 2011

Relevant facts

You are a local community publication, and are funded by advertising.

You were approached by a local community group to assist them to reach the local community through the publication.

You allocated two pages in the publication which would usually be sold as advertising space and in doing so have foregone an amount in advertising income.

You issued an invoice to the community group for this amount, and they sent you a tax receipt for it.

The community group is a deductible gift recipient (DGR).

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 8-1

Income Tax Assessment Act 1997 Section 30-15

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

A number of significant court decisions have established that, for an expense to satisfy the requirements of section 8-1 of the ITAA 1997:

It must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income producing expense    (Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166)

There must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236); and

It is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces their assessable income (Charles Moore & Co Pty Ltd v. Federal Commissioner of Taxation (1956) 95 CLR 344; (1956) 11 ATD 147; (1956) 6 AITR 379 and Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 5570.

In your case, you have donated space in your publication to a community group. You have not incurred any direct costs in doing so. Consequently you are not allowed a deduction under section 8-1 of the ITAA 1997 for the donation of advertising space.

Donation to a Deductible Gift Recipient

Division 30 of the Income Tax Assessment Act 1997 (ITAA 1997) outlines the guidelines for the deductibility of gifts and donations. Section 30-15 of the ITAA 1997 provides that a gift to any funds or institutions listed is allowable as a deduction in the income year in which the gift is made, provided the gift meets the various conditions of the relevant subsections.

  To be able to claim a tax deduction for a gift, it must:

1)     be made to a deductible gift recipient (DGR)

2)      be a gift of money or property that is covered by a gift type, and

3)      be truly a gift.

Taxation Ruling TR 2005/13 explains what constitutes a gift. The term gift is not defined in the ITAA 1997 and so for the purposes of Division 30, it has its ordinary meaning. The courts have described a gift as having the following characteristics and features:

  (a)  there is a transfer of money or property

(b)  the transfer is made voluntarily

(c)  the transfer arises by way of benefaction, and

(d)  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.

Transfer of money or property

Referring to parts 83 and 84 of TR 2005/13:

Money or property must be transferred to a DGR

83. Services that are provided to a DGR by volunteers are not tax deductible as there is no transfer of property involved. Likewise any expenses that may be borne by the volunteer in the course of providing the services to the DGR are not deductible as gifts as there is no transfer of property to the DGR.

84. In Case S43 85 ATC 343; (1985) 28 CTBR (NS) Case 49 , the Board of Review affirmed the decision of the Commissioner to deny deductions for motor vehicle, postage and telephone expenses totalling $675 incurred by the taxpayer in the course of undertaking voluntary work for a DGR. The Board held that the taxpayer did not make a gift of money or property to the DGR. What the taxpayer gave was simply his services.

You have foregone income from the advertising space, but this does not constitute the definition of a gift in part (a) of TR 2005/13. The making of a gift to a DGR involves the transfer of a beneficial interest in property to that DGR and it is a requirement that identifiable property has in fact been transferred to the DGR. The provision of services to a DGR by a donor/volunteer does not constitute a gift, as the ordinary meaning of property does not include services. This also extends to any expenditure incurred in the course of providing the unpaid work/services, the expenditure is also not considered to be a gift. Nor is it deductable under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a loss or outgoing incurred in gaining or production assessable income.

You have allowed the community group to use advertising space in your publication without any payment to you and there has not been any transfer of money or property. Since your donation does not meet all the conditions of a gift under Division 30 of the ITAA 1997, you are not eligible to claim a deduction in the income year the gift is made to the Community Group.