Private ruling: Tax deductible gifts
Published: May 2012
Ruling period: Year ending 30 June 2013
Date scheme commenced: 12 October 2012

Ruling: Q1: Can the Rulee issue a receipt for gifts pursuant to subsection 30-228(1) of the Income Tax Assessment Act 1997 (ITAA 1997) for contributions received in the form of Sponsorships 1, 2 and 3 for an annual fundraising gala ball? | A1: No. | Q2: Can the Rulee issue receipts for gifts pursuant to subsection 30-228(1) of the ITAA 1997 for donations received in the form of Sponsorships 4 and 5 for an annual fundraising gala ball? | 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. 1. The Rulee is endorsed as a deductible gift recipient. 2. The Rulee will hold a gala ball to raise funds and public awareness. 3. The charity gala ball will include drinks and canapés on arrival, a three course dinner, live entertainment, silent auction, guest speakers, presentation on personal stories and an opportunity to meet staff, board members, major donors, corporate supporters, political figures and members of the community. 4. The Rulee will offer the following sponsorship packages: a. Sponsorship 1 (only one available) This grants the rights to brand the event with inclusion of the sponsor's corporate logo. The sponsor will be entitled to the following: · Corporate name/logo on all publications and collateral including letter head, website, event brochures, newsletters, etc · Corporate name/logo on all promotional media for the event · Organisational representative will speak at the event opening · An education opportunity · Twenty invitations to the dinner (2 tables at a premium location) · Prominent corporate branding of your company as naming sponsor including: o Full page corporate branding and recognition in the events souvenir programme o Corporate logo displayed on the multimedia slide show showcased in the main dining room o Acknowledgement from the podium during speeches o Prominent corporate logo on event marketing materials o Recognition in Annual Report o Recognition on the Rulee's Website o Prominent corporate logo on all post event materials such as 'thank you' sent to attendees o First opportunity to be naming sponsors for the event in the following year · Opportunity to display corporate services at the events general reception · A complimentary 2 year membership b. Sponsorship 2 (two available) The sponsor will be entitled to the following: · Corporate name/logo on all publications and collateral including letter head, website, event brochures, newsletters, etc · Corporate name/logo on all promotional media for the event · An education opportunity · Twenty invitations to the dinner (2 tables at a premium location) · Half page corporate branding and recognition in the events souvenir programme · Corporate logo displayed on the multimedia slide show showcased in the main dining room · Acknowledgement from the podium during speeches · Prominent corporate logo on event marketing materials · Recognition in the Annual Report · Recognition on the Rulee's Website · Opportunity to display corporate services at the events general reception · A complimentary 2 year membership c. Sponsorship 3 The sponsor will be entitled to the following: · An education opportunity · Ten invitations to the dinner · Corporate branding and recognition in the events souvenir programme · Acknowledgement from the podium during speeches · Recognition in the Annual Report · Recognition of the level of sponsorship displayed on the Website · A complimentary 1 year membership d. Sponsorship 4 An ambassador sponsor provides the opportunity for financially disadvantaged members of the community to attend the event. This sponsorship includes: · Provide one seat to a member of the community · Recognition in the Annual Report · Recognition in the events souvenir programme · Recognition on the level of sponsorship displayed on the Website · Education opportunity e. Sponsorship 5 - Donation to event For those unable to attend who wish to support our event the following will be provided: · Listing of your company/name in the Souvenir Programme · A personal copy of the Souvenir Programme 5. Sponsorships 1 and 2 will be formalised in a written sponsorship agreement. Sponsorship 3 has the option of a formal written agreement.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 30 and | Income Tax Assessment Act 1997 Subsection 30-228(1).

Reasons for decision: Summary: As specified in subsection 30-228(1) of the ITAA 1997 a deductible gift recipient (DGR) may issue a receipt for a gift. Because the sponsors receive material benefits in return for the sponsorship fee it is not considered a gift. Therefore, money provided to the Rulee for the Sponsorships 1, 2 and 3 are not tax deductible gifts under Division 30 of the ITAA 1997 and the Rulee cannot issue a tax deductible receipt for such transactions. However, the subscription fees may be income tax deductible as business expenses for the donors. | Detailed Reasoning - Detailed reasoning: Subsection 30-228(1) of the ITAA 1997 states that if a DGR issues a receipt for a gift, the receipt must state the name and ABN of the deductible gift recipient and the fact that the receipt is for a gift. The term 'gift' is not defined in the ITAA 1997. For the purposes of Division 30 of the ITAA 1997 the word 'gift' has its ordinary meaning. 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 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. Taxation Ruling TR 2005/13 Income Tax: tax deductible gifts - what is a gift explains what is a gift for the purposes of the gift deduction provisions in terms of these principles drawn from case law. Paragraph 15 of TR 2005/13 states: 15. In determining whether a transfer is a gift it is necessary to consider the whole set of circumstances surrounding the transfer and this may include consideration of parties other than the giver and the DGR. It is the substance and reality of the transfer that has to be ascertained. It is therefore necessary to take account of those acts, transactions, arrangements and circumstances that provide the context and the explanation for the transfer. | Detailed Reasoning - Transfer of money or property: The making of a gift to a DGR involves the transfer of beneficial interest in money or property to that DGR. In the simplest cases this involves the delivery of money or goods to the DGR. | Detailed Reasoning - Voluntary transfer: The case authorities make it clear that for a transfer of property to be a gift it must be made voluntarily. A transfer will be voluntary if it is 'the act and will of the disponor and there was nothing to interfere with or control the exercise of that will' ( Cyprus Mines Corporation v. Federal Commissioner of Taxation 78 ATC 4468 at 4481; (1978) 9 ATR 33 at 48). A transfer is not made voluntarily if it is made for consideration or because of a prior obligation imposed on the giver by statute or by contract or where the purported gift has the effect of discharging or reducing a prior contractual obligation of the giver's associate. | Detailed Reasoning - Benefaction: An essential attribute of a gift is that benefaction is intended, and in fact conferred on the recipient. Conferring benefaction means that the DGR is advantaged in a material sense, to the extent of the property transferred to them, without any countervailing detriment arising from the terms of the transfer. An obvious example of a transfer that is not by way of benefaction is where the giver merely makes a payment in order to receive services from the DGR. The DGR has the obligation of performing or providing the services. Generally, such payments also fail to be gifts because they are not voluntary and they provide material benefits to the giver. If any liability or obligation falling on the DGR as a result of the transfer of property is material the transfer is not a gift. | Detailed Reasoning - No material benefit returned: 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. The giver may still be regarded as having received a material benefit in a case where the value of the benefit to the giver is less than the value of the property transferred. In these circumstances it is not accepted that the value of the benefit received can be notionally deducted from the value of the property transferred and the net balance claimed as a gift. No part of the property transferred is considered a gift. It is a question of fact in each case whether any benefit or advantage is considered material. A benefit or advantage can be material if there is a link between the benefit and the transfer, and the benefit is sufficiently significant in relation to the value of the transfer. Paragraphs 43 and 44 of TR 2005/13 provide examples of what benefits are considered material and nonmaterial. 43. Each of these is not a material benefit or advantage: · one that has no link with the transfer; · one that is insignificant in relation to the value of the transfer; · one that only constitutes advertising for the DGR; · one that cannot be put to use and is not marketable; · one that does not create any rights, or confer any privileges or entitlements; · one that merely accounts for the use of the funds; · one that is mere public recognition of the giver's generosity; or · one that confers membership of a DGR which was neither sought nor known by the giver at the time of making the transfer. 44. 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; · as a result of the transfer, a legal obligation is eliminated or reduced; · the benefit is offered by the DGR as an inducement to potential givers; · there is public recognition for purposes of commercial advertising for the giver; · membership rights and privileges are obtained as a result of transfer; or · there is a requirement to report to the giver on results of research undertaken by the DGR and the results are to be used by the giver. Information received about the DGR and its activities is unlikely to be a material benefit. 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 v. Federal Commissioner of Taxation (1980) (Leary) , 'a man may, by his gifts, gain fame or formal honours without losing his tax deductions'. On the other hand, recognition accorded to the giver for purposes of commercial advertising is a material benefit. Sponsorships of DGRs by commercial entities generally fall into this category. Such outgoings, however, may be income tax deductible as business expenses. Paragraph 195 of TR 2005/13 provides the following example: Example 68 195. As part of its 'corporate philanthropy' program, a large retailer sponsors three special exhibitions of a public art gallery (a DGR). Its business name is to be included in the name of the exhibition, all advertising and displays of the exhibition are to feature its logo and name in the dimensions it specifies, and they are to emphasise its support and commitment to the arts. The retailer will give the gallery $400,000 for each of the exhibitions. The payments will not be gifts. They do not arise by way of benefaction. The retailer receives material benefits from the advertising. However, the retailer may be entitled to deductions for the payments as business expenses. The amount of the gift cannot be split from the amount paid in respect of the material benefit. Paragraphs 149 and 150 of TR 2005/13 explain: 149. Where DGRs conduct fundraising events such as celebrity dinners, gala events, $1,000-a-plate dinners, and so on, the price of a ticket cannot be notionally split between the value of the material benefit received, that is, the meal, and the amount which represents a gift. Where attendees are to pay a given sum of money in order to attend a function, no part of that sum can be considered a gift. This is so even where the cost of attendance is well in excess of the value of the meal received. Example 42 150. F attends a '$600 a plate dinner'. Regardless of whether the payment exceeds the cost of the meal, F has received a material benefit in exchange for the purchase price of the ticket to the dinner. No part of the $600 is a gift. | Detailed Reasoning - Sponsorship packages: The Rulee offers a variety of sponsorship opportunities. Each sponsorship package involves a payment of money to the Rulee. The Sponsorships 1, 2 and 3 all include the following benefits: · An education opportunity · Invitations to the gala dinner · Corporate branding and recognition in the events souvenir programme · Acknowledgement from the podium during speeches · Recognition in the Annual Report · Recognition of the level of sponsorship displayed on the Website · Complimentary membership Sponsorships 1 and 2 also include additional branding and recognition benefits: · Corporate name/logo on all publications and collateral including letter head, website, event brochures, newsletters, etc · Corporate name/logo on all promotional media for the event · Organisational representative will speak at the event opening · Prominent corporate branding of your company as naming sponsor including: · Corporate logo displayed on the multimedia slide show showcased in the main dining room · Prominent corporate logo on event marketing materials · Prominent corporate logo on all post event materials such as 'thank you' sent to attendees · First opportunity to be naming sponsors for the event in the following year · Opportunity to display corporate services at the events general reception. With each type of sponsorship money will be transferred to the Rulee. Therefore, there is a transfer of beneficial interest. Sponsorships are taken up by donors voluntarily and not as a result of any prior contractual obligations. The transfer of the sponsorship fee to the Rulee materially advantages the Rulee. In return for the sponsorship fee the sponsors receive an advantage in the form of branding and commercial advertising opportunities. These entitlements to commercial advertising and branding in relation to the event are formalised in a written agreement between the Rulee and the sponsor. A formal agreement is optional for Sponsorship 3. The obligation on the part of the Rulee to provide commercial advertising and branding is material. Therefore, even though the Rulee materially benefits from the sponsorship fee, it is not made by way of benefaction. There is a clear link between the benefits received by the sponsor and the amount transferred to The Rulee. The Sponsorship 1 is available for the greatest fee and has the most benefits, especially in terms of corporate branding. The Sponsorship 2 has fewer benefits and this is reflected in the lesser fee amount. Again, Sponsorship 3 is less again and entitles the donor to fewer advertising benefits. Mere public recognition of the donors, such as acknowledgement of their support in the Annual Report, event speeches and website are not considered material benefits. Likewise, educational opportunities provided by the Rulee to donors about their work are also immaterial. However, other benefits such as tickets to the gala, membership and corporate branding and recognition on event material are considered a material benefit. All of the benefits are offered as a package in return for a specified sponsorship fee so must be considered as an arrangement as a whole. The fact that these benefits are offered by the DGR as an inducement to potential givers, there is public recognition for purposes of commercial advertising for the giver and membership rights and privileges are obtained as a result of transfer indicate that these benefits are material. Because the sponsors receive material benefits in return for the sponsorship fee and it is not provided by way of benefaction, it is not considered a gift. Therefore, money provided to the Rulee for the Sponsorships 1, 2 and 3 are not tax deductible gifts under Division 30 of the ITAA 1997 and the Rulee cannot issue a tax deductible receipt for such transactions. | Summary: As specified in subsection 30-228(1) of the ITAA 1997 a DGR may issue a receipt for a gift. Sponsorship fees for Sponsorships 4 and 5 transferred to the Rulee will be a gift. The Rulee may therefore issue a receipt pursuant to subsection 30-228(1) of the ITAA 1997 to a donor who transfers money for these sponsorships. | Detailed Reasoning - Detailed reasoning: As discussed above, to qualify as a gift for the purposes of Division 30 and subsection 30-228(1) of the ITAA 1997, the following features must be present: · 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. The Rulee offers various types of sponsorship for its gala ball. Both Sponsorships 4 and 5 require the voluntary payment of a sponsorship fee. The money derived from these fees will be used by the Rulee to fund their charitable operations. Thus the sponsorship packages satisfy the first three characteristic of a gift. | Detailed Reasoning - No material benefit returned: As already discussed in question one, in order to constitute a gift, the giver must not receive a benefit or an advantage of a material nature by way of return. Only advantages or benefits that are material will affect whether a transfer is a gift. Benefits that are minor or negligible will not prevent the transfer from being a gift. Paragraph 186 of TR 2005/13 states: 186. 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'. The Sponsorship 4 differs from the other types of sponsorships offered. This sponsorship provides an opportunity for one financially disadvantaged person to attend the gala. In return for this the sponsor receives the following: · Recognition in the Annual Report · Recognition in the events souvenir programme · Recognition on the level of sponsorship displayed on the Website · Education on the work of the Rulee The Sponsorship 5 does not incur a sponsorship fee. This type of sponsorship is for those that cannot attend the event but wish to make a donation. The amount of donation is unspecified. In return for the donation the sponsor will have their name, or company name, listed in the souvenir programme for the event and also receive a personal copy of the program. The recognition of Sponsorships 4 and 5 in the event programme, annual reports and website is considered immaterial and does not prevent the donation from being a gift for the purposes of Division 30 of the ITAA 1997. The Rulee can issue a receipt for a gift for amounts transferred to them for these sponsorships.

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