Edited version of private advice

Authorisation Number: 1051782540900

Date of advice: 19 November 2020

Ruling

Subject: Deductibility of gifts

Is a gift of money made through an overseas third party, under specific arrangement, to a deductible gift recipient (DGR) as defined in section 30-227 of Income Tax Assessment Act 1997 (ITAA 1997), tax deductible pursuant to section 30-15 of ITAA 1997?

Answer:

No.

This ruling applies for the following period:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Company 1 is a (non DGR) company that operates an on-line platform to collect donations from businesses which are completely passed on to a variety of designated charitable organizations.

Entity 1 makes donations through Company 1 as agent.

A membership fee (separate from the donation) is paid to Company 1 for the use of their logo for our promotional/marketing benefit. No benefit is received for the donation itself, including no additional benefits based off the amount of the donation i.e. if the donation reaches a certain amount.

Once the membership begins, donations will continue indefinitely and there is no effective end date for the program.

Entity 1 agrees to be bound by the "terms and conditions" when they access/use any of Company 1's websites, services or applications.

Company 1 are not agents of the DGRs. As stated in section 6 of the "terms and conditions", contributions are held by Company 1, then passed to the DGR. Company 1 accumulates funds from various businesses until a specified amount is reached for the designated charities and then transfers the funds to the DGR the following month.

Where an account balance remains less than $500 for 12 months, Company 1 will either:

(a)  if the amount is greater than the cost of the bank transfer: remit the amount to the charity; or

(b)  if the account balance is less than the cost of bank transfer: Company 1 will close the charity's account and remit the remaining funds to a selected charity organisation.

Entity 1 chooses which charitable causes it supports and therefore can choose to support charities which have a deductible gift recipient (DGR) status in Australia.

A payment history can be generated that separately shows the following payment types: Contributions Payment, Tax Claim Payment and Membership Payment.

Entity 1 will not receive receipts from the DGRs, but will receive a "tax claim statement" at the end of each financial year from Company 1 which states:

•         DGR's name and ABN

•         Date on donation

•         Amount of donation

•         Related project.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 30-227

Income Tax Assessment Act 1997 Section 30-15

Income Tax Assessment Act 1997 Section 900-110

ATO view documents

Taxation Ruling TR 2005/13

Reasons for decision

Detailed reasoning

Division 30 of the ITAA 1997 allows a deduction for certain gifts or contributions made to eligible organisations, called deductible gift recipients (DGR).

Subsection 30-15 provides the circumstances to claim a deduction and relevantly provides that a deduction can be claimed for a gift of money to the value of $2 or more and the recipient of the gift is endorsed as a deductible gift recipient. Section 30-15 also provides special conditions that must be satisfied to claim a deduction. It is accepted the special conditions will be satisfied in the current circumstances.

Taxation Ruling TR 2005/13 Income tax: tax deductible gifts - what is a gift (TR 2005/13) explains the meaning of 'gift' for the purposes Division 30 of the ITAA 1997.

Paragraph 12 of TR 2005/13 states that the term 'gift' is not defined in the ITAA 1997. For the purposes of Division 30 of the ITAA 1997 the word 'gift' has its ordinary meaning.

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 the beneficial interest in property

The making of a gift to a DGR involves the transfer of a beneficial interest in property to that DGR. It is a requirement that identifiable property has in fact been transferred to the DGR.

For there to be a transfer, the property which belonged to the giver must become the property of the DGR.

The transfer is 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.

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.

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.

No material benefit or advantage is received by the giver by way of return

In order to constitute a gift, the giver must not receive a benefit or an advantage of a material nature by way of return.

Considering the above requirements in relation to Entity 1's donations through Company 1:

•         Entity 1 will specify which DGRs it wishes to donate to.

•         Entity 1 will transfer the donation to Company 1.

•         Company 1 will hold the funds until the amounts in the relevant DGR's account reach the agreed limit, or deal with it according to the terms and conditions where the limit is not reached.

•         Company 1 will then pay the amount to the DGR or another where allowed by the terms and conditions.

•         The DGR will not issue a receipt to Entity 1.

•         A payment history and a tax claim statement will be generated.

In the event that the donation is transferred to a DGR by Company 1 it is considered that Entity 1 has voluntarily transferred beneficial interest in property to the DGR by way of benefaction. Whilst Entity 1 can use Company 1's logo for marketing purposes, this arises from the payment of the membership fee and not from the making of the donations. Therefore, it is also recognised that no material benefit or advantage is received by the giver in return.

Accordingly, any amounts paid to DGRs by Entity 1 through Company 1 would meet the definition of a 'gift' for the purposes of section 30-15 of the ITAA 1997.

From the facts provided, the gifts paid by Entity 1 to DGRs through Company 1 could be deductible under section 30-15. The recipients are endorsed DGRs, the property gifted is money, and the amount gifted will be more than $2. Any available deduction would not be available until Company 1 transferred the money to the DGR on behalf of Entity 1.

However, to claim a deduction, section 900-110 of the ITAA 1997 requires there to be written evidence of the expense:

There is no time limit for getting written evidence of an expense (unless you want to record the expense yourself under section 900-125 or 900-130). But until you get written evidence of it, you are not entitled to a deduction for the expense.

Guidance in relation to the records needed to evidence a gift is provided in Australian Tax Office online publication Gifts and fundraising; Claiming tax deductions; Keeping a record of your donation which states:

When you make a donation the deductible gift recipient (DGR) will usually issue you with a receipt, but they don't have to. If this is the case, in some circumstances you can still claim a tax deduction by using other records such as bank statements.

We do not consider the payment history and tax claim statement to be akin to a bank statement. A bank statement is a third-party document that verifies that money has been transferred from one account to another (where the account owners are different, it shows that ownership of the money has changed). The payment history and tax claim statement do not verify that money has been transferred from Entity 1 to a DGR and are not sufficient evidence that a gift has been made to a DGR by Entity 1.