Edited version of private advice

Authorisation Number: 1051984507434

Date of advice: 24 May 2022

Ruling

Subject: Tax deductible gifts

Question 1

Can the DGR issue a tax-deductible receipt under section 30-228 of the Income Tax Assessment Act 1997 (ITAA 1997), if the organisation reimburses a member for travel expenses and that member subsequently gives the DGR a voluntary donation of money that is of similar, or equal value, to the reimbursement amount?

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:

1 July 20XX

Relevant facts and circumstances

The Deductible Gift Recipient (DGR) is a registered charity with DGR status and is registered with the Australian Charities and Not-for-Profit Commission (ACNC).

The DGR works in international assistance.

As part of working for the DGR, members often pay for their own airfares and accommodation.

The members have no expectation of compensation for their travel expenses.

Occasionally, the DGR is able to reimburse some, or all, of the travel expenses

When the DGR reimburses the member's travel expenses, the member often gives the DGR a monetary gift of an equal or similar amount to the reimbursement.

There have been two previously issued private rulings, one in 2014 and one in 2018.

There have been no changes to the circumstances in previous applications for this private ruling request.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 30

Income Tax Assessment Act 1997 section 30-228

Reasons for decision

Summary

It is considered that a donation from a member is a gift, therefore the DGR can issue a receipt in respect of the tax-deductible gift in accordance with section 30-228 of the ITAA 1997.

Detailed reasoning

Division 30 of the ITAA 1997 sets out the rules governing deductibility of gifts or contributions.

Under item 1 of the table in section 30-15 of the ITAA 1997 a gift of $2 or more made to a fund, authority or institution in Australia that is endorsed as a DGR will be deductible.

DGRs are not obliged to issue a receipt for gifts received. However, section 30-228 of the ITAA 1997 requires that if a DGR does not issue a receipt for a gift described in the relevant item of the table in section 30-15 of the ITAA 1997, the receipt must state the name and ABN of the DGR and the fact that the receipt is for a gift.

Therefore, for the DGR to be able to issue a receipt in accordance with section 30-228 of the ITAA 1997, the donation as described in the facts must constitute a gift.

What is a gift?

Taxation Ruling TR 2005/13 Income tax: tax deductible gifts - what is a gift (TR 2005/13) explains the meaning of a gift for the purposes of 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' takes its ordinary meaning.

Paragraph 13 of TR 2005/13 states that the courts have described a gift as having the following characteristics and features:

•         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 be of the giver, and there must be nothing to interfere with or control the exercise of that will. A transfer made under a sense of moral obligation is still 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:

Paragraph 107 of TR 2005/13 discusses the case of Federal Commissioner of Taxation v. McPhail (1968) 117 CLR 111 (McPhail):

In McPhail, the payment to a school building fund (a DGR) was not accepted as a voluntary payment because 'it was a payment made pursuant to a contract between the taxpayer and School Council' in relation to school fees. Under the arrangement, the parents qualified for lower school fees for their children should they take up the school's invitation to make payments to the building fund. The arrangement therefore involved a choice between full school fees and lower fees plus a 'gift' to the building fund. The High Court held there was no tax deductible gift.

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 advantage of a material nature by way of return.

In this case, there has been a transfer of beneficial interest in the gift, the money that was once the member's is now the property of the DGR. The gift is a simple transfer of money, which materially benefits the DGR with no detriment. The gifting of the money has been made voluntarily by the member, there was no consideration given and the member is under no obligation to make the gift. There is no prior agreement in place, the decision to gift the money is purely the choice of the member. Once the gift was transferred, it is the decision of the DGR to use it as they choose. The DGR will be able to issue a tax-deductible receipt provided particulars are met under section 30-228 of the ITAA 1997 (ABN and name of the DGR, and the fact the receipt is for a gift).

Conclusion

In this case, it is considered that a donation from a member is a gift, therefore the DGR can issue a receipt in respect of the tax-deductible gift in accordance with section 30-228 of the ITAA 1997.