Private ruling: Tax deductible gifts
Published: October 2014
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: During year ended 30 June 2015

Ruling: Q1: Where a Seller makes a donation to the Funds under the scheme, can the Funds issue a receipt for a tax deductible gift in accordance with section 30-228 of the Income Tax Assessment Act 1997 ? | A1: Yes.

Relevant facts and circumstances: 1. The Funds are endorsed as deductible gift recipients (DGR). 2. The Fund owns a private company (the Company) that intends to operate a business. 3. The business provides a service of selling unwanted items of value on behalf of the public. As part of the service, Sellers are given the option of donating part or all of the proceeds of the sale to a nominated DGR. 4. Sellers enter into an Agreement with the Company. 5. The Agreement is an agreement between the Company and a Seller that contains the following elements: • The Seller authorises the company to sell particular goods of the Seller on their behalf. • The Seller may specify that the goods must not be sold below a specified price (Minimum price). • The Company is entitled to a commission if the goods are sold. • The Company may provide additional services in connection with the sale of goods, such as, photographing the goods and arranging transport of the goods, etc. Additional fees may be charged for these services. • The Company must pay the Seller the net proceeds of the sale, being the sale price achieved minus the commission and any additional fees. • Where an Authorisation has been signed by the Seller, the Company must pay the specified donation from the net proceeds to the nominated DGR on behalf of the Seller and pay the balance of the net proceeds to the Seller. 6. An Authorisation is an authorisation signed by the Seller which authorises the Company to donate a specified amount ($2 or more) to a nominated DGR on behalf of the Seller. The specified amount may be a fixed dollar amount or a nominated percentage of the net proceeds of the sale. 7. A Seller is under no obligation to sign an Authorisation. 8. The Company entering into an Agreement is not conditional upon the Seller signing or otherwise granting an Authorisation. 9. The Authorisation may be part of the same document as the Agreement. 10. The Authorisation may provide for a default donation amount where the Seller does not expressly nominate a specific donation amount. Likewise, where a Seller does not expressly nominate a specific DGR the donation may be paid to a default DGR. 11. A receipt acknowledging the donation will be provided directly to the Seller by the DGR after the donation has been paid. 12. Initially the DGRs which may be nominated in the Authorisation will be limited to the Funds. 13. Sellers will mostly be past students, parents or grandparents of current or past students.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 30-15 and | Income Tax Assessment Act 1997 section 30-228.

Reasons for decision: Summary: The Funds can issue a receipt for a tax deductible gift in accordance with section 30-228 of the Income Tax Assessment Act 1997 to Sellers who make a donation to them under the scheme. | Detailed Reasoning - Detailed reasoning: A DGR may issue a receipt to a donor for donations it receives. Such a receipt can be used by donors to substantiate income tax deduction claims for gifts to DGRs made in their income tax returns. Though DGRs are not required by the income tax law to issue receipts for deductible gifts, any receipts issued must specify all of the following: • that the receipt is for a gift • the name of the DGR • the ABN of the DGR. We will consider whether donations given to you under the scheme have the features of a gift. | Detailed Reasoning - Gifts: Item 1 of the table in section 30-15 of the ITAA 1997 outlines the types of gifts that can be received by DGR that will be tax deductible. They include money, property purchased within the last 12 months and property valued over $5000. As explained in Taxation Ruling TR 2005/13 Income Tax: tax deductible gifts - what is a gift? a gift will have the following characteristics: • there is a transfer of money or property • the transfer is made voluntarily • the transfer arises by way of benefaction, and • no material benefit or advantage is received by the giver. | Detailed Reasoning - Transfer of money or property: For there to be a tax deductible gift, the giver must have proprietary rights in the property just prior to its transfer. Upon the transfer, ownership in the property moves from the giver to the DGR. Under the scheme Sellers enter into an agreement with the Company to sell items on their behalf. The items are not donated to the Company or to the nominated DGRs. Rather, once the items are sold, the proceeds from the sale, less the commission or fees payable to the Company, belong to the Seller. The Seller has the right to be paid the net sales proceeds or authorise the company to donate the money to a nominated DGR on their behalf. Therefore, the ownership of the money moves from the Seller to the nominated DGR and is at no point beneficially owned by the Company. The gift is made by the Seller to the DGR when the money is transferred to the DGR by the Company. The amount of the gift is the amount of money actually transferred to the DGR. | Detailed Reasoning - Voluntary: A transfer is not made voluntarily if it is made for consideration or because of a prior obligation imposed on the giver by contract. However, where the means chosen to give effect to a voluntary transfer has contractual features, this will not prevent the transfer from being a gift. Sellers enter into a contractual agreement with the Company to sell items on their behalf and if they choose, authorise the Company to donate a nominated amount of the net proceeds to a nominated DGR on their behalf. Even though the arrangement for the donation has contractual features, the decision made by the Seller to direct funds to be donated is voluntary. This is because the Seller has control over the net proceeds of the sale and voluntarily directs it, or part of it, to be paid to a nominated DGR. The situation is similar to the following examples in TR 2005/13: Example 24 …On 1 May 2002, F pays a further $900 to the School General Account to confirm enrolment of his second child for the 2003 school year. While the child is at the school, F does not direct the enrolment fee to the School Building Fund. After the child has left the school, the school writes to F and gives him the option of having the $900 refunded or making a gift to the XYZ School Building Fund. The $900 is transferred at F's direction from the XYZ School General Account to the XYZ School Building Fund (a DGR). As F has control over the money and voluntarily decides to direct it to the XYZ School Building Fund, the $900 is a gift. Example 26 A private school's half-yearly fee accounts include an amount described as a 'donation to the school building fund' (a DGR). It is included in the same way as all other amounts on the account, there is no other indication that its payment is not required, and it is included in the total amount shown as due and payable. The amount shown as a 'donation' is not a voluntary payment; it is not a gift. If on the other hand the account shows the amount as being optional, and it is not included in the total amount shown as due and payable, it is considered a voluntary payment and in the absence of contrary features, regarded as a gift. Example 27 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. The decision to sign the Authorisation is optional. The Company does not provide its services on the condition that the Seller makes a donation. Despite having an obligation to make the donation under the Authorisation, it is still a gift when paid to the DGR. The choice to make the donation through the Company is therefore voluntary. | Detailed Reasoning - No material benefit: 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. Under the scheme, the Seller receives no material benefit from the DGR it chooses to donate to. Likewise, the services provided by the Company to Sellers are not a material benefit to the donors because the Sellers must pay the Company a commission and fees for any services under the Agreement. | Detailed Reasoning - Conclusion: Considering the above features it is concluded that a donation given under the scheme is a gift. The Funds may issue a receipt to Sellers for a gift of money.