Private ruling: Donations
Published: July 2012
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 1 July 2000

Ruling: Q1: Can the entity issue receipts for gifts pursuant to sub section 30-228(1) of the Income Tax Assessment Act 1997 (ITAA 1997) in the form of donations? | A1: Yes | Q2: Does the anti-avoidance provisions under section 78A of the Income Tax Assessment Act 1936 (ITAA 1936) apply? | A2: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The entity has been endorsed as a deductible gift recipient (DGR) as a public benevolent institution (PBI) since 1 July 2000. The entity is also been endorsed as a tax concession charity as a PBI. A prospective donor wants to donate approximately $740 per fortnight to the entity over the next financial year and a similar amount the following financial year with the intention that the funds be used to keep the entities open. The major beneficiary of the donation will be the donor's spouse who is an employee of the entity, through an increase in the spouse's salary and via salary sacrifice into superannuation. The entity seeks advice on whether the donation would be considered to be a gift and if a tax deductible gift receipt can be issued should the donation occur.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 30-55 | Income Tax Assessment Act 1997 sub section 30-228(1) | Income Tax Assessment Act 1997 section 50-5 | Income Tax Assessment Act 1936 section 78A

Reasons for decision: Detailed Reasoning - Detailed Reasoning: For the purposes of Division 30 of the ITAA 1997, the word 'gift' is not defined in the ITAA 1997. The word 'gift' has its ordinary meaning and its definition is discussed in case law and in Taxation Ruling TR 2005/13. For a transfer of money or property to be characterised as a gift, it should arise from benefaction and proceed from detached and disinterested generosity. Paragraph 13 of the TR 2005/13 identifies the characteristics and features which the courts have used to describe a gift: · 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. With each donation, money will be transferred to the entity. Therefore, there is a transfer of beneficial interest. The donations will be given voluntarily and not as a result of any prior contractual obligations. The donation will also benefit the entity as it will be used to keep the entities open. The donor will not directly receive any material benefit or advantage by way of return from the donation to the entity. Thus the donation satisfies the first four characteristics of a gift for the purposes of Division 30 of the ITAA 1997. However, paragraph 38 of TR 2005/13 states that any benefit that is received (or is reasonably expected to be received) by an associate of the giver has to be taken into account in determining whether a transfer falls within the provisions of paragraph 78A(2)(c) of the Income Tax Assessment Act 1936 (ITAA 1936). | Detailed Reasoning - Question 2: Summary The anti-avoidance provisions under section 78A of the Income Tax Assessment Act 1936 (ITAA 1936) apply and an income tax deduction for the gift will not be allowable under Division 30 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Even if a particular transfer of property may arguably be a gift, the anti-avoidance provisions of section 78A of the ITAA 1936 may apply. Where that section applies, an income tax deduction for the gift will not be allowable under Division 30 of the ITAA 1997. Broadly speaking, this provision aims to ensure that 'the benefit to the fund will equal the deduction allowed to the taxpayer' (per Sweeney J in Bray v. Commissioner of Taxation (1977) 77 ATC 4339 at 4358; (1977) 7 ATR 780 at 803) Paragraph 47 of TR 2005/13 provides an explanation of section 78A: Section 78A applies where by reason of the making or receipt of the gift or any scheme or arrangement association with the gift: · the amount or value of the benefit derived by the DGR as a consequence of the gift is, or will be, or may reasonably be expected to be, diminished subsequent to the receipt of the gift (paragraph 78A(2)(a)); · another fund, authority or institution, other than the recipient DGR makes, or become liable to make, or may reasonably be expected to make a payment, or transfer property to any person or incur any other detriment, disadvantage, liability or obligation (paragraph 78A(2)(b)); · 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 · the recipient DGR or another fund, authority or institution acquires property, directly or indirectly, from the giver or the giver's associate (paragraph 78A(2)(d)). The provision applies to purported gifts if there is considerably reduced benefaction in fact conferred upon the recipient DGR arising from the transfer of the property. It also applies if the benefit associated with the transfer of the property is return either wholly or in part to the giver or the giver's associate. Therefore section 78A operates to deny the whole of the deduction for the purported gift in circumstances where the net result is that the DGR obtains a benefit that is considerably less in comparison with the nominal value of the property transferred. As stated in paragraph 47 of TR 2005/13 a donation will not be considered to be a gift if the giver or giver's associate obtains any benefit. Based on the information provided, the major beneficiary of the donation will be the donor's spouse who will benefit from an increase in salary and superannuation . The anti-avoidance provisions of section 78A will therefore apply given an associate of the donor will obtain an advantage from the donation. Accordingly, paragraph 78A(2)(c) applies and the donation to the entity is not a tax deductible gift under Division 30 of the ITAA 1997.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | The entity can issue receipts for gifts pursuant to sub section 30-228(1) of the Income Tax Assessment Act 1997 (ITAA 1997) in the form of donations.