Private ruling: deductions for donations
Published: May 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you eligible to claim a deduction for funds donated to a deductible gift recipient (DGR) if the DGR then uses the funds received to repay a loan owed by the DGR to you? | A1: No

Relevant facts and circumstances: You loaned funds to a deductible gift recipient (DGR) during the year ended 30 June 200X. During the years ended 30 June 200X to 30 June 20YY you made gifts to the DGR which were used to fund its activities. The funding of the loan and the gifts has come from your own income, and has not been borrowed by you. You are a trust recipient, and are not in the business of money lending. You have claimed deductions since 200X for the gifts you have made to the DGR, and none of these deductions has been in respect of the loan. You intend to provide a further amount in the 20ZZ year. The DGR will use the amount to repay some, or all, of the loan, owed by the DGR to you. You don't have any written loan agreement with the DGR regarding the funds you have loaned to it. There are no DGR meeting minutes of the loan. Because the DGR is a charity, the loan is interest free. The DGR operates a separate account for donations, and another account. The loan amount is not recorded in the donation account.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 78A (2) | Income Tax Assessment Act 1997 Section 30-15

Reasons for decision: Summary: Division 30 of the Income Tax Assessment Act 1997 (ITAA 1997) outlines the guidelines for the deductibility of gifts and donations. Section 30-15 of the ITAA 1997 provides that a gift to any funds and institutions listed is allowable as a deduction in the income year in which the gift is made, provided the gift meets the various conditions of relevant subsections. To be able to claim a tax deduction for a gift, it must: 1. be made to a deductible gift recipient (DGR) 2. be a gift of money or property that is covered by a gift type, and 3. be truly a gift. Subsection 78A(2) of the ITAA 1936 lists circumstances whereby a deduction is not allowable under Division 30 of the ITAA 1997. These include: (b) Where the recipient as a result of the gift being made, is expected to make or become liable to make a payment or transfer property, or suffers any other detriment. In your case, you state that the loan to the DGR is a legal obligation owed by the DGR to the donor, and that following receipt of the gift the DGR will repay the loan. It follows that you will have the expectation at the time you make the payment to the DGR that those funds would be used by the DGR to repay all or part of the loan you had made to it. Therefore, a deduction for the donations made to the DGR is not allowable under paragraph 78A(2)(b) of the ITAA 1936. Where an amount provided to the DGR was used to repay part of the loan and this amount was donated back to the DGR to repay all or part of the remainder of the loan with the same expectation of repayment paragraph 78A(2)(b) would still apply.