Edited version of private advice

Authorisation Number: 1052163669523

Date of advice: 4 September 2023

Ruling

Subject: GST - financial assistance payment; income tax and whether payment is a 'gift'

Question 1

For the purposes of issuing a receipt under subsection 30-228(1) of the Income Tax Assessment Act 1997, is the money received by you from another entity a 'gift'?

Answer

No.

Question 2

Are you making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for which the payment received under the Funding Agreement with the other entity is consideration?

Answer

No.

Relevant facts and circumstances

The entity (you) is a registered charity and:

•         is income tax exempt

•         is a deductible gift recipient, and

•         is registered for goods and services tax.

You were invited to apply for funding from another entity for a specified amount to support your project (the Project).

The other entity is a charity that supports other charitable organisations to deliver various initiatives.

You submitted an application to the other entity for the project, setting out the Project start and end dates.

The other entity agreed to support the Project with a single contribution of a specified amount.

You entered into a funding agreement (the Funding Agreement) with the other entity.

A copy of the Funding Agreement and your initial funding application were provided to the ATO.

The other entity requested that you provide 'an official tax receipt' that meets the following criteria:

•         It must be a receipt, not a tax invoice or purchase order

•         There must be acknowledgement that the amount received was a GIFT or DONATION

•         It must state the amount received from the other entity

•         It must include the date of receipt of funds

•         It must include the organisation's ABN

•         The receipt must be from the relevant DGR entity (if possible) that receives the funds

The receipt cannot take the form of an invoice or purchase order and it must acknowledge that the amount received was a "Gift" or "Donation".

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 30

Income Tax Assessment Act 1997 subsection 30-15(1)

Income Tax Assessment Act 1997 subsection 30-228

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-10

Reasons for decision

Question 1

Summary

It is considered that the money transferred to you by the other entity is not a 'gift' for the purposes of issuing a deductible gift receipt under section 30-228 of the Income Tax Assessment Act 1997 (ITAA 1997). This is because a condition of the Funding Agreement leaves you without full, unfettered, control of the money. The condition imposes limitations and obligations on you in relation to the money transferred such that you are not entitled to deal with the money 'to the entire exclusion of the giver', and benefaction has not, in fact, been conferred.

Detailed reasoning

Subsection 30-228(1) of the Income Tax Assessment Act 1997 sets out the information that must be contained on a receipt issued by a deductible gift recipient (DGR) for deductible gifts as described in subsection 30-15(1).

What is a gift?

Taxation Ruling TR 2005/13 Income tax: tax deductible gifts - what is a gift (TR 2005/13) provides the Commissioner's view about what a 'gift' is for the purpose of the deductible gift provisions in Division 30 of the ITAA 1997.

The term 'gift' is not defined in the deductible gift provisions so takes its ordinary meaning, which the Courts have described 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 (TR 2005/13, paragraph 13).

In determining whether a transfer is a 'gift' it is necessary to consider all of the circumstances surrounding the transfer. The criteria may not be absolute and may involve a matter of degree. It is the substance and reality of the transfer that has to be ascertained, so it is necessary to take account of those acts, transactions, arrangements, and circumstances that provide the context and explain the transfer (TR 2005/13, paragraphs 14 and 15).

In relation to transfer of beneficial interest, paragraph 77 of TR 2005/13 explains that the recipient must receive full title, custody and control of the property upon transfer, so that the recipient is entitled to deal with the property in its own right to the entire exclusion of the giver.

That benefaction is, in fact, conferred on the recipient is an essential attribute of a gift. The recipient must be advantaged, in a material sense, to the extent of the transfer, without any counteracting and material 'detriment' arising from the circumstances or terms of the transfer (TR 2005/13, paragraph 27 and 113). Where the giver is aware that the terms of the transfer may result in detriment, disadvantage, obligation, liability, or limitations on the recipient, 'benefaction' may be missing (TR 2005/13, paragraph 28).

Based on the facts, it is accepted that you received a specified amount of money from the other entity. The payment was made voluntarily, and the other entity did not receive any 'material' benefit or advantage by way of return.

However, the Funding Agreement contains conditions whereby you must use the money in a certain way and the other entity's approval must be obtained before you can change the way you use the funds. As a result of this condition, although the money has been transferred to you, you do not have full, unfettered, control of the money. The condition imposes limitations and obligations on you in relation to the money transferred such that you are not entitled to deal with the money 'to the entire exclusion of the giver' as discussed in paragraph 77 of TR 2005/13, and benefaction has not, in fact, been conferred.

For the above reasons, it is considered that the money transferred to you by the other entity is not a 'gift' for the purposes of Division 30 of the ITAA 1997, specifically the purpose of issuing a deductible gift receipt under section 30-228.

Question 2

Summary

You are not making a taxable supply to the other entity as the payment is not consideration for a supply.

Detailed reasoning

Under section 9-5 of the GST Act, an entity makes a taxable supply if:

•         the entity makes the supply for consideration

•         the supply is made in the course or furtherance of an enterprise that the entity carries on

•         the supply is connected with the indirect tax zone (i.e. Australia), and

•         the entity is registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

The first requirement of a taxable supply to be satisfied is that there is a supply for consideration.

The term 'supply' is defined in section 9-10 of the GST Act as meaning any form of supply whatsoever and includes:

•         a supply of goods or services;

•         a provision of advice or information;

•         a grant, transfer or surrender of real property;

•         a creation, grant, transfer, assignment or surrender of any right; or

•         an entry into, or release from, an obligation to: do anything, refrain from an act, or tolerate an act or situation.

Goods and Services Tax Ruling GSTR 2012/2 Goods and services tax: financial assistance payments (GSTR 2012/2) provides the Commissioner's views on when a financial assistance payment is consideration for a supply.

In GSTR 2012/2, paragraph 5 states that the term 'financial assistance payment' is intended to encompass a wide range of payments. This includes payments:

•         made to provide support or aid to the payee, and/or

•         provided to support or aid in the implementation of government policy and initiatives.

In your case, you entered into a Funding Agreement with the other entity for funding for a specified amount of money. The purpose of the funding is to support the Project outlined in your Funding Application during the agreed timeframe. Under the Funding Agreement, the funding may only be used for this purpose.

In your circumstances, the payment you received from the other entity is considered to be a financial assistance payment.

For a financial assistance payment to be consideration for a supply, it is not sufficient for there to be a supply and a payment. The financial assistance payment must be consideration for that supply. Paragraph 15 of GSTR 2012/2 explains that there must be a sufficient nexus between:

•         the financial assistance payment made by the payer, and

•         a supply made by the payee.

Further, paragraph 15 states that a financial assistance payment is consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement of' a supply. The test is an objective one.

Paragraph 16 of GSTR2012/2 discusses factors that are to be taken into account when examining an arrangement and states:

16. Reference to all of the surrounding circumstances of the arrangement, in particular any written documentation, determines whether a financial assistance payment is 'in connection with', 'in response to' or 'for the inducement of' a supply. The surrounding circumstances may include the statutory purpose of the payer in providing the financial assistance, the activities which are to be undertaken by the payee and any other terms and conditions attached to the payment. However, none of these factors will be determinative on their own and the arrangement must the considered as a whole. The description the parties may give to the arrangement, whilst relevant, is not determinative.

The guidance at paragraph 56 of GSTR 2012/2 is of particular relevance. Paragraph 56 discusses payments for no supply and states:

56. In particular, there is no supply where the agreement between the parties is not binding and creates expectations alone. However, the payee may still make a supply in the absence of enforceable obligations. Where there is an agreement that does not bind the parties in some way there may still be a supply where there is something else, such as goods or some other benefit, passing between the parties.

In your case, under the Funding Agreement, there is no binding obligation for you to undertake the Project for which you receive the funding. There is merely an expectation that you will use the funding for the Project and in the agreed timeframe. Further, there is no supply, such as goods or some other benefit, passing between you and the other entity under the Funding Agreement for which the funding payment is consideration.

Consequently, you are not making a taxable supply to the other entity as the payment is not consideration for a supply.