Private ruling: Tax Deductibility of Donations
Published: April 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 March 2013

Ruling: Q1: Can the entity issue a receipt for gifts pursuant to subsection 30-228(1) of the Income Tax Assessment Act 1997 (ITAA 1997) for corporate donations received for a community activity? | A1: Yes | Q2: Can the entity issue a receipt for gifts pursuant to subsection 30-228(1) of the Income Tax Assessment Act 1997 (ITAA 1997) for donations received from individuals for the community activity? | A2: No | Q3: Can the entity issue a receipt for gifts pursuant to subsection 30-228(1) of the Income Tax Assessment Act 1997 (ITAA 1997) for donations received from businesses for supporting the sporting team? | A3: No | Q4: Can the entity issue a receipt for gifts pursuant to subsection 30-228(1) of the Income Tax Assessment Act 1997 (ITAA 1997) for the purchase of tickets received for supporting the charity luncheon? | A4: No

Relevant facts and circumstances: The entity is currently endorsed as a deductible gift recipient under section 30-125 of the ITAA 1997 on the basis that it is a public benevolent institution as set out in item 4.1.1 of the table in section 30-45 of the ITAA 1997. A letter from the entity stated that it plans to undertake some fundraising activities: a community activity, sporting acitivty, and a charity luncheon. The entity requests a Private ruling on whether the donations would be tax deductible.

Relevant legislative provisions: Income Tax Assessment Act 1997 30-45. | Income Tax Assessment Act 1997 30-125. | Income Tax Assessment Act 1997 30-228.

Reasons for decision: Detailed Reasoning - Gifts: Subsection 30-228(1) of the ITAA 1997 states that if a DGR issues a receipt for a gift, the receipt must state the name and ABN of the deductible gift recipient and the fact that the receipt is for a gift. For the purposes of Division 30 of the ITAA 1997, the word 'gift' is not defined in the ITAA 1997. The word 'gift' has its ordinary meaning and its definition is discussed in case law and in Taxation Ruling TR 2005/13 Income tax: tax deductible gifts - what is a gift (TR2005/13). For a transfer of money or property to be characterised as a gift, it should arise from benefaction and proceed from detached and disinterested generosity. This view was propounded by Owen J. in Federal Commissioner of Taxation v. McPhail (1968) 117 CLR 111 41 ALJR 346: …its is, I think, clear that to constitute a "gift", it must appear that the property transferred was transferred voluntarily and not as the result of a contractual obligation to transfer if and that no advantage of a material character was received by the transferor by way of return. In Klopper & Anor v. FC of T 97 ATC 4179, at 4184, Nicholson J considered the case authority on what constitutes a gift and stated: The purport of this dicta is a payment can only be characterised as a gift when there is the element of voluntariness and the absence of consideration: that is, where there is truly a notion of benefaction so there is no advantage of a material character being received in return. 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 Paragraph 15 of TR 2005/13 states: 15. In determining whether a transfer is a gift it is necessary to consider the whole set of circumstances surrounding the transfer and this may include consideration of parties other than the giver and the DGR. It is the substance and reality of the transfer that has to be ascertained. It is therefore necessary to take account of those acts, transactions, arrangements and circumstances that provide the context and the explanation for the transfer. | Detailed Reasoning - Transfer of beneficial interest in property: The making of a gift to a deductible gift recipient (DGR) involves the transfer of a beneficial interest in property to that DGR. For there to be a transfer, the property which belonged to the giver must become the property of the DGR. For a gift to be valid and effectual, the giver must have 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. | Detailed Reasoning - Transfer 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 ( Cypus Mines Corporation v FC of T (1978) 9 ATR 33). 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. | Detailed Reasoning - Arises by way of benefaction: The essential idea of a gift is that there is a conferral of benefaction on the recipient. Deane J in Leary v FC of T 80 ATC 4438; (1980) 11 ATR 145; (1980) 32 ALR 221 explained this at 80 ATC 4453-4454 and 11 ATR 163: It involves, in my view, the concept that the relevant transfer is by way of well doing in that the recipient will be advantaged, in a material sense and without any countervailing material detriment arising from the circumstances of the transfer, to the extent of the property transferred to him. Brennan J also said at 80 ATC 4451 and 11 ATR 160: If the disponor is aware that the receipt of the property by the disponee will impose a liability upon the latter, the disposition may be seen not to be by way of benefaction…No doubt much depends upon a comparison between the property taken and the liability incurred. | Detailed Reasoning - No material benefit or advantage: In order to constitute a gift, the giver must not receive a benefit or an advantage of a material nature by way of return. It does not matter whether the material benefit or advantage comes from the DGR or another party. The giver may still be regarded as having received a material benefit in a case where the value of the benefit to the giver is less than the value of the property transferred. In these circumstances it is not accepted that the value of the benefit received can be notionally deducted from the value of the property transferred and the net balance claimed as a gift. No part of the property transferred is considered a gift. It is a question of fact in each case whether any benefit or advantage is considered material. A benefit or advantage can be material if there is a link between the benefit and the transfer, and the benefit is sufficiently significant in relation to the value of the transfer. Paragraphs 43 and 44 of TR 2005/13 provide examples of what benefits are considered material and nonmaterial. 43. Each of these is not a material benefit or advantage: · one that has no link with the transfer; · one that is insignificant in relation to the value of the transfer; · one that only constitutes advertising for the DGR; · one that cannot be put to use and is not marketable; · one that does not create any rights, or confer any privileges or entitlements; · one that merely accounts for the use of the funds; · one that is mere public recognition of the giver's generosity; or · one that confers membership of a DGR which was neither sought nor known by the giver at the time of making the transfer. 44. Some circumstances which may lead to a conclusion that a benefit or advantage is material are where: · the benefit is sought by the giver in connection with the transfer; · as a result of the transfer, a legal obligation is eliminated or reduced; · the benefit is offered by the DGR as an inducement to potential givers; · there is public recognition for purposes of commercial advertising for the giver; · membership rights and privileges are obtained as a result of transfer; or · there is a requirement to report to the giver on results of research undertaken by the DGR and the results are to be used by the giver. Information received about the DGR and its activities is unlikely to be a material benefit. On the other hand, recognition accorded to the giver for purposes of commercial advertising is a material benefit. Sponsorships of DGRs by commercial entities generally fall into this category. Such outgoings, however, may be income tax deductible as business expenses. Paragraph 195 of TR 2005/13 provides the following example: Example 68 195. As part of its 'corporate philanthropy' program, a large retailer sponsors three special exhibitions of a public art gallery (a DGR). Its business name is to be included in the name of the exhibition, all advertising and displays of the exhibition are to feature its logo and name in the dimensions it specifies, and they are to emphasise its support and commitment to the arts. The retailer will give the gallery $400,000 for each of the exhibitions. The payments will not be gifts. They do not arise by way of benefaction. The retailer receives material benefits from the advertising. However, the retailer may be entitled to deductions for the payments as business expenses. The amount of the gift cannot be split from the amount paid in respect of the material benefit. Paragraphs 149 and 150 of TR 2005/13 explain: 149. Where DGRs conduct fundraising events such as celebrity dinners, gala events, $1,000-a-plate dinners, and so on, the price of a ticket cannot be notionally split between the value of the material benefit received, that is, the meal, and the amount which represents a gift. Where attendees are to pay a given sum of money in order to attend a function, no part of that sum can be considered a gift. This is so even where the cost of attendance is well in excess of the value of the meal received. | Detailed Reasoning - Example 42: 150. F attends a '$600 a plate dinner'. Regardless of whether the payment exceeds the cost of the meal, F has received a material benefit in exchange for the purchase price of the ticket to the dinner. No part of the $600 is a gift. The receipt of a material benefit by way of return to the giver will disqualify the transfer as a gift ( FC of T v. McPhail (1968) 117 CLR 111). Deane J in Leary at 164 said that an obvious example where a material benefit or advantage is received by way of return is where the transfer is made 'in return for valuable consideration received by the transferor from the transferee'. Brennan J in Leary also expressed, at 4451, that where a giver is found to have received a material benefit in return for a purported gift, it is not necessary that the material benefit comes directly from the recipient of the property transferred. As stated above, the main issue to consider is whether the advantages or benefits are material, because the material nature of the advantages will affect whether a transfer is a gift. The requirement of materiality will exclude matters of a de minimis nature ( AAT Case 12,314 Re Hodges v. FC of T 97 ATC 2158; (1997) 37 ATR 1091 ) . TR 2005/13 discusses several circumstances on what is considered to be a material benefit or advantage. Specifically, TR 2005/13 considers whether a benefit is insignificant in comparison with the value of transfer and the following is stated in paragraph 169: It is a question of fact in each case whether any benefit or advantage is sufficiently significant to be material. Where a benefit of utility or value is received, it will only be considered as not material if there is a considerable disproportion between the value of the transfer and the benefit received. For example, a benefit in the form of a key-ring might be immaterial when considering a transfer of $4,000 but significant for a $4 payment. TR 2005/13 also considers the situation where the DGRs provide public recognition and acknowledgement to the donors. Paragraph 186 provides the following explanation: The public recognition accorded to givers will commonly not be a material benefit. This includes mere acknowledgement in newsletters, annual reports, on a donors' board, and so on. As Bowen CJ said in Leary , 'a man may, by his gifts, gain fame or formal honours without losing his tax deductions'. As discussed in the examples from paragraph 188 to 190 of the TR 2005/13, public acknowledgement and recognition for the givers' generosity by engraving their names on a plaque to be placed on the wall does not constitute a material benefit or advantage to the givers. | Detailed Reasoning - Community Activity: The entity plans to raise funds to build to purchase / build further local emergency crisis accommodation participants and will participate in the activity and this will not only raise funds but to also create awareness of related issues in the region. Corporations can make a donation of $X and will receive recognition on the donor board on the night as a supporter, and be listed as a donor on the entity's website and in the entity's annual report. $Y donors will receive the same recognition. Mere public recognition of the donors, such as acknowledgement of their support in the entity's Annual Report, donor board and website are not considered material benefits. Therefore, donations made by Corporates over $X and individuals over $Y based on the facts provided would be tax deductible as any benefit they receive is not material. However, donations made by individuals of $Z would not be tax deductible because on the night they receive material goods for making the donation. In order to be a gift, the donor must not receive a material benefit or an advantage by way of return. For example the purchases of items such as chocolates and pens are not gifts. It does not matter whether the material benefit or advantage comes from the deductible gift recipient (DGR) or another party. | Detailed Reasoning - Sporting Team: The fact that businesses can have a logo on the sporting trailer and participants jersey's is a form of advertising. These benefits are offered by the DGR as an inducement to potential givers, there is public recognition for purposes of commercial advertising for the giver indicating that these benefits and it is not provided by way of benefaction. It is not considered a gift. Therefore, money provided to the entity by local businesses for the sporting team will not be tax deductible gifts under Division 30 of the ITAA 1997 and the entity cannot issue a tax deductible receipt for such donations. | Detailed Reasoning - Charity Luncheon: Where the benefit to the giver is less than the value of the property transferred it may not be a gift. The amount of the gift cannot be split from the amount paid in respect of the material benefit. Paragraphs 149 and 150 of TR 2005/13 explain: 149. Where DGRs conduct fundraising events such as celebrity dinners, gala events, $1,000-a-plate dinners, and so on, the price of a ticket cannot be notionally split between the value of the material benefit received, that is, the meal, and the amount which represents a gift. Where attendees are to pay a given sum of money in order to attend a function, no part of that sum can be considered a gift. This is so even where the cost of attendance is well in excess of the value of the meal received. | Detailed Reasoning - Example 42: 150. F attends a '$600 a plate dinner'. Regardless of whether the payment exceeds the cost of the meal, F has received a material benefit in exchange for the purchase price of the ticket to the dinner. No part of the $600 is a gift. As the cost for the tickets to the charity luncheon exceeds the value of the ticket cost is not tax deductible as a gift. | Detailed Reasoning - CONCLUSION: Based on the facts provided the only tax deductible fundraising event for the entity would be the Community activity where the donations made by Corporates exceed $X and $Y for individuals.