Private ruling: Tax deductibility of gifts
Date of advice: 24 January 2017
Published: June 2017
Ruling period: Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019
Date scheme commenced: Year ending 30 June 2016

Ruling: Q2: Can the library issue receipts as tax deductible gifts under section 30-228 of the Income Tax Assessment Act 1997 (ITAA 1997) to donors to fund the permanent installation of a religious stained glass window in the wall of a building? | A1: No

Relevant facts and circumstances: The library is currently endorsed as a deductible gift recipient as a public library item 12.1.2. The building is a multi-use complex comprising a library. The library is not separately owned it is all on one title. The entity wishes to collect donations to fund the following items and issue tax deductible receipts to donors for their gifts. ● Visual Family History ● Religious stained glass windows

Relevant legislative provisions: Division 30 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: 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. | 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 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. As discussed in the key-ring example in paragraph 169 of TR 2005/13, the benefit received will be considered material if there is a considerable disproportion between the value of the transfer and the benefit received. The meaning of disproportion here is if the value of benefit received is considerably small compared to the value of the transfer. For example, paragraph 169 shows that receiving a key-ring for a transfer of $4,000 is considered to be disproportionate and therefore, immaterial. The donations made will not be a tax deductible gift. The cost involved is disproportionate to any benefit the library would receive to assist it in performing its use and function. The general public would consider that the library itself is not receiving any value from the transfers to enable it to perform its public function. | Detailed Reasoning - Question 2: Paragraph 14 and 15 of TR 2000/10 Income tax: public libraries, public museums and public art galleries states that the term library is defined by the ordinary or natural meaning. A Library being 'a place set apart to contain books and other literary material for reading, study, or reference, as a room, set of rooms, or building where books may be read or borrowed ... a collection of manuscripts, publications, and other materials for reading, study, or reference'. | Detailed Reasoning - Do other people recognise it as such and does it conduct itself in ways that are consistent with such a character?: Paragraph 24 of TR 2000/10 states that whether an institution is a library depends on the purposes for which it is constituted, how people recognise it, and the ways it operates. As stated in paragraph 26 of TR 2000/10, if an institution's activities are not consistent with these functions we do not accept it as a library. The mere possession of a collection of literature is unlikely, on its own, to make an institution a library. It is considered installing the religious themed stained glass windows in the building wall would not be consistent with the function of a library. TR 2000/10 further states: | Detailed Reasoning - Collection: 28. We do not specify what items can form the collections of libraries, museums and art galleries. However, we recognise that the nature of such institutions can place limits, especially in relation to cultural value and human interaction. We have accepted living plants and wild animals as the exhibits of museums. Buildings or places of historical significance can comprise a museum's collection where they are used only in that way and are recognised by the public as such. For example, a court house may be of architectural and historical significance. However, if it still operates as a court house and is primarily regarded by the community as a court house, then the building and any funds donated towards its restoration would not be accepted as being for the purposes of a public library, public museum or public art gallery. Similarly, a memorial may be of historical significance; however, its primary function is as a memorial not as a museum. | Detailed Reasoning - Use and display: 30. Making their collections available for use is a distinguishing feature of libraries, museums and art galleries. The modes of use include lending, display, making available for reading (including over the Internet), and vary with the sort of institution and its particular purpose. The mere storage of artefacts without display or regular lending is insufficient. 31. The display of artworks or artefacts is not sufficient to be a museum or art gallery. They must be displayed in such a way that viewers engage them as part of the collection of the museum or art gallery. While display in a building or separate place may be most common, it is not essential. Display in a building or separate place enables an institution readily to distinguish the library, museum or art gallery from the rest of the institution. For other displays, the items must be clearly identifiable to the public as part of the particular collection. In addition, they must be integrated with the other functions of a museum or art gallery. If the window is installed in the multipurpose building it will no longer form part of the library. The main purpose and function would be as a wall in a building and not as part of a library collection that is movable and able to be lent to members of the public. It would not be clear to the general public that this item belongs to the library collection. Therefore, any funds received for the purpose of installing the window would not be tax deductible to the donor. | Detailed Reasoning - Conclusion: Funds collected for the purpose of and the display of religious themed stained glass windows would not be tax deductible donations.

Question 1: Can the library issue receipts as tax deductible gifts under section 30-228 of the Income Tax Assessment Act 1997 (ITAA 1997) to donors to fund a project?