Private ruling: Deductibility of gifts
Published: September 2013
Ruling period: Year ending 30 June 2014
Date scheme commenced: On or after 1 July

Ruling: Q1: Where a donor makes a donation and requests that the donation be used in a specified way, is the donation a gift for which a receipt can be issued in accordance with section 30-228 of the Income Tax Assessment Act 1997 ? | A1: Yes

Relevant facts and circumstances: Scenario 1. Donor sends a cheque for a $1000 donation with a covering letter saying that they would like the money spent on repairs to a particular item within the collection. If the Donor had simply sent a cheque for $1000 it could have been spent on the item Scenario 2. Donor sends a cheque for $1000 with a covering letter which says, inter alia, "I am aware that you have many projects requiring funding but I would be pleased if you could consider spending this donation on repairs to the item?

Relevant legislative provisions: Section 30-15 of the Income Tax Assessment Act 1997 | Section 30-228 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: Section 30-228 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a deductible gift recipient can issue a receipt for a gift described in section 30-15 of the ITAA 1997, and sets out the information that must be provided in the receipt. Section 30-15 of the ITAA 1997 sets out the situations in which a gift or contribution can be deducted from taxable income. Generally, section 30-15 provides that a non-testamentary gift of money or property (to the value of $2 or more) can be deducted where the gift is given to a deductible gift recipient (subject to special conditions). In determining whether a particular amount is a deductible gift, it is necessary to consider whether the amount paid is a gift. The term 'gift' is not defined in the ITAA 1997, and has its ordinary meaning for the purposes of Division 30 of the ITAA 1997 (see for example, Federal Commissioner of Taxation v. McPhail (1968) 117 CLR 111 at 116). The term 'gift' is discussed in Taxation Ruling TR 2005/13 Income tax: tax deductible gifts - what is a gift which provides the following on the meaning of 'gift': 13. Rather than attempting a definition of gift, 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. 14. In doing so, the courts have recognised that the criteria may not be absolute and may involve a matter of degree. 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 involves the transfer of money or property to the recipient. It is a requirement that ownership in identifiable property is divested and transferred to the recipient. In the case of money (cash, cheque or electronic funds transfer) or goods this would require delivery of the money or goods to the recipient. In both scenarios 1 and 2 the delivery of the cheque by the donor to the recipient is enough to establish that a transfer of property has occurred between the donor and the recipient. | Detailed Reasoning - Transfer made voluntarily: To be a gift, a transfer must be made voluntarily. That is, the transfer must result from the act and will of the donor, and there must be nothing to interfere with or control the exercise of that will ( Cypres Mines Corporation v Federal Commissioner of Taxation 78 ATC 4468 at 4481) A transfer is not made voluntarily if it is made from an obligation imposed by law, whether contract, statute or otherwise ( Leary v Federal Commissioner of Taxation 80 ATC 4438 at 4439) In both scenarios 1 and 2 there is nothing that shows that the transfer was made under duress, and not of the donor's free will. There is also nothing that shows that the transfer resulted from an obligation imposed by law. In both scenarios the transfer was made voluntarily. | Detailed Reasoning - Arises by way of benefaction: To be a gift there must be a conferral of benefaction on the recipient. That is, the recipient must 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 them ( Leary v Federal Commissioner of Taxation (supra) at 4453-4454) TR 2005/13 states the following on the conferral of benefaction: 28. Where the giver is aware that the transfer of property will result in detriments, disadvantages, obligations, liabilities or limitations to the recipient, the attribute of benefaction may be missing. Whether benefaction is in fact conferred will depend to a large extent on the proportion which the detriment, disadvantage, obligation, liability or limitation bears to the value of the property transferred. 29. However, detriments, disadvantages, obligations, liabilities, or limitations borne by the recipient which are not within the knowledge and intention of the giver at the time of the transfer, and which do not arise from the terms of the transfer of property by the giver, do not necessarily preclude a finding that the conferral of benefaction was associated with the transfer. 30. Detriments that are immaterial in comparison with the value of the transfer will not preclude a finding that the transfer arises from benefaction. … In both scenarios 1 and 2, the donor expresses a preference as to the recipient's use of the money. However, the expressed preference in both scenarios falls short of imposing a material detriment on the recipient (there is no disadvantage, obligation or limitation). In both scenarios the language of the donor is such that the recipient receives full value of the benefit of the money, and the discretion to use the money as they decide. In both scenario 1 and 2, there is a conferral of benefaction in relation to the transfer. | Detailed Reasoning - No material benefit or advantage: To be a gift, a donor must not receive a benefit or advantage of a material nature by way of return ( Federal Commissioner of Taxation v. McPhail (supra) at 116). It does not matter if the material benefit or advantage comes from the recipient or another party. The value of the material benefit or advantage given to the donor need not be as much as the value of the property transferred to the recipient. A benefit or advantage that is not material will not affect whether a transfer is a gift In both scenarios 1 and 2 there is nothing that shows that the donor received a material benefit or advantage from transferring the property. The donations made in scenarios 1 and 2 have the characteristics of a gift, and provided the gift conditions set out in section 30-15 of the ITAA 1997 are satisfied, the donations would be tax deductible, and a receipt can be issued under section 30-228 of the ITAA 1997.