Private ruling: Tax deductible gifts
Date of advice: 15 February 2016
Published: April 2016
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019
Date scheme commenced: Year ended 30 June 2015

Ruling: Q1: Can the entity issue a receipt for a gift as described in the relevant item of the table in section 30-15 of the Income Tax Assessment Act 1997 for donations made by donors through an agent, under the terms of a valid and executed payment direction deed? | A1: Yes

Relevant facts and circumstances: 1. The entity is an Australian public company limited by guarantee. 2. The entity is a registered public benevolent institution (PBI) and is a deductible gift recipient (DGR). 3. The entity runs a program that assists needy people in the community. 4. The program is a series of arrangements between different parties. 5. As a part of the program the entity also acts as an agent for participants. Participants (donors) may make donations to the entity, through the entity in its capacity as agent, by entering into a payment direction deed. 6. Under the payment direction deed the agent will deduct amounts nominated as a gift from amounts owing to the donor under the program and pay them directly to the entity. 7. The participants are under no obligation to enter into the payment direction deed and the deed is revocable under its terms. 8. A gift made by a donor is not directly connected to any particular participant in the program. The gift received by the entity becomes part of the general pool of funds used to finance the operations of the entity. The donor has no control over how the funds will be deployed by the entity.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 30-B | Income Tax Assessment Act 1997 section 30-15 | Income Tax Assessment Act 1997 subsection 30-45(1) | Income Tax Assessment Act 1997 subsection 30-228(1)

Reasons for decision: Summary: Donations made to the entity through an agent, under the terms of a valid and executed payment direction deed are gifts as described in the relevant item of the table in section 30-15 of the Income Tax Assessment Act 1997 (ITAA 1997). The entity may issue a receipt for a tax deductible gift for the donations. | Detailed Reasoning - Detailed reasoning: Deductible gift recipients may issue a receipt for tax deductible gifts they receive. The receipt must include information specified in subsection 30-228(1) of the ITAA 1997, namely, the receipt must state the name and ABN of the deductible gift recipient (DGR) and the fact that the receipt is for a gift. A receipt can only be issued for amounts that are a true gift and are described in a relevant item of the table in section 30-15 of the ITAA 1997. | Detailed Reasoning - What is a gift: The word 'gift' is not defined in the ITAA 1997. The ordinary meaning of the word 'gift' has been applied in case law and is discussed in Taxation Ruling TR 2005/13 Income tax: tax deductible gifts - what is a gift . A payment is a gift if it has all the following characteristics: • the donor transfers money or property • the donor makes the transfer voluntarily • the transfer arises by way of benefaction • the donor does not materially benefit from the gift These characteristics are not absolute and may involve a matter of degree. In determining whether a transfer is a gift it is necessary to consider the whole set of circumstances that provide context and explanation for the transfer. Transfer of money or property The making of a gift to a DGR involves the transfer of a beneficial interest in property to that DGR. In each case it is necessary to ascertain whether a transfer has occurred, what property has been transferred and when the transfer took place. This is to ensure that ownership of identifiable property has been divested and transferred to the DGR. For there to be a tax deductible gift, the giver must have proprietary rights in the property just prior to its transfer. When money or property is transferred to the DGR, the DGR must receive full title, custody and control of the property so that the DGR is entitled to deal with the property in its own right. The transfer may still be a gift when it is made by way of an agent. In an agency relationship, an agent has an authority or capacity to create or affect legal relations between a principal and third parties. Generally speaking, what a person may do themselves, the person may do by an agent. If an agent discloses his principal's name (or at least the existence of a principal) to the third party with whom he is dealing, the agent himself is not normally entitled to the benefit of, or be liable on, the contract. Therefore, an agent does not have beneficial interest in the property being transferred. TR 2005/13 provides the following example at paragraph 80: L hands over a computer to a DGR, on the basis that it will simply act as her agent in passing the computer on to a particular school which is not a DGR. The DGR agrees to the condition and passes it on to the school. While L has physically handed over the computer to a DGR, there is no transfer of beneficial interest in the computer to the DGR. Transfer 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 that 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. TR 2005/13 provides the following example at paragraph 104: W voluntarily enters into a deed of gift to transfer five yearly instalments of $2,000 to be paid to a DGR on 30 June each year. Despite having the obligation to make the five $2,000 instalments, they are gifts when paid to the DGR. The decision to enter into the deed of gift was voluntary, and no consideration was received by W in respect of 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. Does not materially benefit the donor To constitute a gift, the giver must not receive any material benefit or advantage from the transfer. | Detailed Reasoning - The Program: Under the program, participants can make a donation of money to the entity under the terms of a payment direction deed (Deed). Under the terms of the Deed, the donor directs the agent, to deduct a specified donation amount from each payment owing to them under the program and to pay it directly to the entity. The entity will then issue a receipt to the donor for the donation. The Deed effectively authorises the agent to make the donation on the donor's behalf. In this way the donation is made through an agent. Notwithstanding that the donation is made through agent, it is still a gift if the beneficial interest remains with the donor just prior to the transfer and then beneficial interest transfers to the DGR. In this case the donors retain beneficial interest in the money just before the transfer to the entity. The agent is only dealing with the payment owing to the donors under the program on their behalf. When the money is transferred, the entity has full beneficial ownership and control of the money. Under the Deed, the entity has absolute discretion on how the amount may be used, consistent with its purposes. It forms part of the general funds of the entity used to finance the operations of the entity. Further, the gifts will only be deductible when the donation amount has actually been transferred to the DGR. In this case, the gifts are made by the donors when their agent transfers the donation amount to the entity. At this point, the entity may issue a receipt for the gift. Even though the arrangement for the donation has a contractual nature, the donation is still voluntary. A donor is under no obligation to enter into the Deed and the Deed is revocable. The Deed does not constitute an ongoing promise to make donations. The donor voluntarily enters into the Deed. Therefore, the donations made are still voluntary gifts. The donation also exhibits other characteristics of a gift. The donation is a simple transfer of money which materially benefits the entity, and without detriment arising from the terms of the transfer. The donors only enter the arrangement with the objective of benefitting needy persons in the community who the entity aims to assist. Therefore, the gift confers benefaction to the entity and the donor receives no material benefit in return. Considering the circumstances and context of the donation, on the whole it has the characteristics consistent with a gift. | Detailed Reasoning - Gift is tax deductible: A gift will be tax deductible under section 30-15 of the ITAA 1997 where it is made to an institution covered by an item in any of the tables in Subdivision 30-B of the ITAA 1997. This includes registered public benevolent institutions described in item 4.1.1 of the table in subsection 30-45(1) of the ITAA 1997. The entity is registered as a PBI. Any gifts made to the entity while it remains a registered PBI and endorsed as a DGR will be tax deductible. | Detailed Reasoning - Conclusion: An arrangement with a valid and executed payment direction deed in place, does not prevent the donation from being a gift for the purposes of section 30-15 of the ITAA 1997. The entity may issue a receipt for a tax deductible gift to the donors for the donation amounts.