Private ruling: Deductibility of donations to a deductible gift recipient
Date of advice: 2 November 2020
Published: January 2021
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will section 78A of the Income Tax Assessment Act 1936 (ITAA 1936) apply when a donation is made to the registered DGR if the donor expresses a preference that the donation is applied to a specific person? | A1: Yes. | Q2: If the donation preference of the donor is for a family member or spouse of the donor, or the donor is registered as a student, will 78A(2)(c) of the ITAA 1936 disqualify the donation from being deductible in accordance with section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A2: Yes.

Relevant facts and circumstances: You are a student studying at a University. You are registered to be a recipient of a scholarship. The scholarship fund is a registered education charity and administers the fund which has approved Deductible Gift Recipient (DGR) status. You have donated to the DGR and expressed that you wish for the donation to be applied to yourself in your consideration to receive a scholarship. Your representative has previously provided the following documents to the Australian Taxation Office (ATO) during the process of a previous private ruling application: • Constitution; • DGR Schedule; and • Public Fund Rules. The Constitution contains the rules relating to the gift fund but makes no mention that donors can elect a preference to who the donation goes to or that the DGR has the final say on who gets the donations. You advise: The money from the donations is passed to the control of the DGR and is mixed with donations from additional donors. The fund manager of the DGR has absolute discretion over awarding the donations as scholarships and who receives a scholarship. The purpose of the fund is to seek donations from the community in order to provide scholarships on an equity basis to those that cannot afford their university or higher education fees. Potential recipients of the scholarships are required to register on the DGR website and create a profile to be issued with an ID which lists the cost of tuition for the recipient. The scholarship is paid directly to the recipient's educational institution and not to the recipient.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 78A | Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 subdivision 30-A

Reasons for decision: Summary: Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. You can deduct a gift or contribution that you make in the situations set out in the table in section 30-15 of ITAA 1997. Whilst the term 'gift' is not defined in the ITAA 1997, Taxation Ruling TR 2005/13 Income tax: tax deductible gifts - what is a gift provides principles on the characteristics and features of a gift. TR 2005/13 highlights that rather than attempting to define a '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. Paragraph 37 of TR 2005/13 states: 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. Paragraph 44 of TR 2005/13 further states: 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; Paragraph 47 of TR 2005/13 further states: Section 78A applies where by reason of the making or receipt of the gift or any scheme or arrangement associated with the gift: the giver or the giver's associate obtains, or will obtain, or may reasonably be expected to obtain any benefit, advantage, right or privilege apart from the benefit of a tax saving associated with the gift deduction (paragraph 78A(2)(c)); or In your case, you have donated an amount of money to the DGR where you are also registered with the same DGR to receive a scholarship. You have specified with your donation to the DGR that you wished for the donation to be passed to you as a recipient of a scholarship from the DGR. Therefore, it is considered that you have made a donation in order to receive a benefit by way of a scholarship. Accordingly, a deduction is not available under section 30-15 of ITAA 1997 and section 78A of ITAA 1936 will apply if you claim the donation amount as a deductible expense while in receipt of a scholarship from the DGR.