Private ruling: Gifts and donations
Published: January 2013
Ruling period: Financial year ending 30 June 2013.
Date scheme commenced: 1 July 2012.

Ruling: Q1: Is an amount paid or transferred to the Applicant by a giver regarded as a gift, and therefore deductible pursuant to sub-section 30-15 of the Income Tax Assessment Act 1997 ("ITAA97"), where, in return for the amount paid or transferred, the giver receives benefits administered by the Applicant? | A1: No. | Q2: Can the Applicant state as a fact on a receipt it issues pursuant to section 30-228 of the ITAA97 that the receipt is for a gift? | A2: No.

Relevant facts and circumstances: The Applicant · is a Charitable Institution endorsed from 1 July 2005; · operates the Fund endorsed as a Deductible Gift Recipient ("DGR") from 31 March 2004. A fund-raising method is being considered by the Applicant. The proposed fund-raising method involves · givers making contributions to the Fund of $X per month; · givers receiving a special classification and exclusive membership to the Applicant's "Circle". Membership to the "Circle" entitles givers to · exclusive access to a restricted part of the Applicant's website; · free copies of the Applicant's publications; and · access and attendance at exclusive events organised by the Applicant, including refreshments. Four exclusive events are planned during the first year of operation of the "Circle". It is not compulsory for givers to attend the exclusive events.

Relevant legislative provisions: Income Tax Assessment Act 1997 sub-section 30-15(1) and | Income Tax Assessment Act 1997 sub-section 30-228(1).

Reasons for decision: Summary: Division 30 of the ITAA97 - Gifts or contributions To be tax deductible, a gift to a DGR must satisfy the conditions contained at Item 1 of section 30-15 of the ITAA97. Specifically, the gift must be · made to an entity that has been endorsed as a DGR; · a gift of money, property, trading stock or shares in a listed public company; and · more than $2 in value. When a DGR issues a receipt for a gift described at Item 1 of section 30-15 of the ITAA97, the receipt must state the: · name of the DGR; · Australian Business Number (ABN) of the DGR; and · the fact that the receipt is for a gift. 1 The word "gift" is not defined by the ITAA97. In Federal Commissioner of Taxation v McPhail (1968) 117 CLR 111 ("McPhail"), the High Court found that, in this context, the word "gift" is to be given its meaning derived from ordinary parlance. This definition was subsequently applied in Leary v FC of T 80 ATC 4438 ("Leary") where Bowen CJ said 'The context and obvious intention of the section suggests that [the word gift] is used in its ordinary non-technical sense'. Rather than identify a complete definition, the courts have identified the qualities and character of a gift. The Commissioner has adopted this approach and confirmed his position in TR 2005/13 Income Tax: tax deductible gifts - what is a gift ("TR 2005/13"). Specifically, the Commissioner views the following characteristics and features as constituting a gift: · There must be a transfer of 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 - Transfer of beneficial interest in property: A transfer of property must occur between the giver and the DGR. In Milroy v Lord (1862) 45 ER 1185, Turner LJ indicated that in order for property to be transferred, the giver must have done everything which according to the nature of the property comprised in the settlement was necessary to be done to make the transfer binding upon him. In the context of money, this includes the Applicant taking possession, custody or control over the funds representing the gift. In this context and on the facts, a giver will transfer to the Applicant the beneficial interest in money by way of a monthly payment of $X made to the Applicant. Accordingly, a transfer of beneficial interest in property occurs. | Detailed Reasoning - Transfer is made voluntarily: A transfer of property must be voluntary in order for it to be considered a gift. In Cyprus Mines Corporation v Federal Commissioner of Taxation 78 ATC 4468, the court said that 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'. This being so, a transfer made under a moral obligation will still be considered voluntary 2 , whereas, a transfer made under a contractual or other legal obligation will not. 3 Further, the transfer must not be made for consideration. In this context and on the facts, a giver will transfer to the Applicant a monthly payment of $75.00 per month for which they do not receive consideration and act under their own free will. Further, there are no facts which indicate or suggest that the free will of the giver has been or will be displaced. Accordingly, a transfer is made voluntarily. | Detailed Reasoning - Transfer arises by way of benefaction: Predominantly, a gift is a conferral of a benefaction on the recipient of the transfer. In Leary, Deane J indicated that this characteristic of a gift involved '...the concept that the relevant transfer is by way of well doing in that the recipient will be advantaged, in a material sense and without any countervailing material detriment arising from the circumstances of the transfer...' 4 This view was also supported by Brennan J. His Honour stated that 'No doubt much depends upon a comparison between the property taken [by the DGR] and the liability incurred [by the DGR]. By way of return to the giver, the Applicant has proposed the following · exclusive access to a restricted part of the Applicant's website; · free copies of the Applicant's publications; and · access and attendance at exclusive events organised by the Applicant, including refreshments. The Applicant has indicated that the exclusive events will be organised at the Applicant's discretion and partially funded by way of gratuitous venue access and use. No information was provided by the Applicant as to the proposed or estimated costs associated with providing exclusive access to their website, publications or managing the exclusive events. In this context and on the facts, a transfer of property by the giver to the Applicant does not give rise to any countervailing disadvantage, obligation or liability upon the Applicant. Specifically, there is no guarantee or certainty in the provision of membership benefits to the giver, and further, this is a fund-raising proposal. Accordingly, the money transferred to the Applicant is by way of benefaction. | Detailed Reasoning - Material benefit or advantage: If a material benefit or advantage is received by the giver resulting from, or, in return for a transfer of property, the transfer of property can not be a gift for taxation purposes. This was the position of Owen J in McPhail, which was subsequently discussed with approval in the joint judgement in Leary. Further, the use of the word "material" with reference to the benefit was first considered by Owen J in McPhail. Subsequently, it was discussed in Hodges v FC of T 97 ATC 2158 ("Hodges"). In this context, Deputy President McMahon of the AAT said that '...it seems to be that His Honour is doing no more than restating the "ordinary parlance" to which he previously referred. The use of the word "material" does not alter the sense of the preceding words. It is probably no more than a reference to the absence of "de minimis" considerations...Possibly Owen J was simply eliminating as a disqualifying factor, any advantage received by a giver of a de minimis nature." 5 The Commissioner has adopted the position that only a benefit or advantage of a material nature will disqualify a transfer as a gift for taxation purposes. Further, the Commissioner has identified certain factors, which, in his view are relevant to a determination of whether a benefit is material in nature. In this context these include · Whether the benefit or advantage has any link with the transfer; · Whether the benefit is used by the DGR as a method to induce potential givers to transfer property; · Whether membership rights or privileges are obtained by the giver as a result of, or in connection with the transfer; and · Whether the benefit is insignificant in comparison with the value of the transfer. · Whether the benefit or advantage has any link with the transfer A link between the benefit or advantage and the transfer must be established in order for the benefit or advantage to be considered material. If a link can be established, it suggests that the benefit or advantage was anticipated or expected by the giver. Accordingly, this circumstance is incompatible with the transfer being a gift. In their application, the Applicant says 'It is proposed that a fund-raising system be undertaken whereby givers are encouraged to contribute an amount of $75.00 per month to the fund and receive a special classification as a member of the … Circle...Givers with this classification would be entitled to...' 6 In this context and on the facts, there is a direct relationship between the amount raised by the Applicant and the benefit or advantage returned to the giver. Indeed, one is exchanged for the other. | Detailed Reasoning - Whether the benefit is used by the DGR as a method to induce potential givers to transfer property: Where the benefit or advantage is used by the DGR to encourage or induce giving, this circumstance is incompatible with the transfer being a gift. The Applicant has not expressly indicated whether the benefit or advantage returned to the giver in the form of access to the website, publications and the Circle would be used to encourage or induce giving. However, in the application, the Applicant indicates that a fund-raising system would be developed whereby contributions of $X per month would be sought. This being so, it is reasonable that as a part of this system, potential givers would be advised by the Applicant of the $X per month option and the associated accesses such transfer brings. | Detailed Reasoning - Whether membership rights or privileges are obtained by the giver as a result of, or in connection with the transfer: A material benefit will exist where rights, privileges, or entitlements are conferred on a giver. In particular, where the rights, privileges or entitlements are such that they are provided to the exclusion of others who do not make a transfer. 7 As identified above from their application, the Applicant states that givers would receive a special classification of membership to the "Circle" and other benefits upon transfer. In this context and on the facts, the membership rights or privileges are obtained by the giver as a result of, or in connection with the transfer. | Detailed Reasoning - Whether the benefit is insignificant in comparison with the value of the transfer: In McPhail, Owen J said that where a material benefit or value is returned by the DGR to the giver, it will disqualify the transfer to the DGR from being a gift. In this context, materiality is a question of fact and must be determined by reference to the circumstances of the return. In particular, the Commissioner's takes the view that a return by the DGR is immaterial only if there is considerable disproportion between the value of the transfer and the benefit returned. Considerable disproportion between the value of the transfer and the benefit returned requires an assessment of an appropriate ratio between the value of the transfer and the benefit returned. Specifically, paragraph 169 of TR2005/13 provides guidance on the materiality of benefits received by a giver in the context of their transfer. It indicates that '...a benefit in the form of a key-ring might be immaterial when considering a transfer of $4,000, but significant when considering a $4 payment. 8 In addition, this is considered in the Charities consultative committee resolved issues document . 9 Although with reference to a GST matter, Part 4 of this document provides a benefit in the form of a key-ring might be immaterial when considering a transfer of $400 but significant for a $4 payment. Further, example 54 of TR 2005/13 is similar, but not analogous to the circumstances of the Applicant. It says: 'M gives $5,000 to the public fund (a DGR) of a performing arts organisation under its patrons' program for the 2004 season. Under the program those who give $5,000 or more to the DGR are offered a free copy of the organisation's newsletter, access to a private lounge during interval for the season's performances (but no free refreshments), a priority booking service, invitations to attend dress rehearsals and acknowledgment of their generosity in the newsletter. Whilst the benefits are offered as part of the patrons' program, they are not considered material in view of the kind of benefits offered and their value in relation to the amount of $5,000 transferred. M has made a gift to the DGR.' Each of the abovementioned proportionality examples identified apply a high threshold of proportionality. For example, $400 or $4,000 for a key-ring, and $5,000 for a series of gratuitous benefits. These examples demonstrate that the benefit returned must be negligible in comparison to transfer in order for the benefit to be considered immaterial. The Applicant proposes that the transfer by the giver is money to the value of $X per month. Over the course of one "membership" year, this equates to $Y and the return by the Applicant is · exclusive access to a restricted part of the Applicant's website; · free copies of the Applicant's publications; and · access and attendance at exclusive events organised by the Applicant, including refreshments. In this context and on the facts, the return offered by the Applicant is substantially more than the kind contemplated in the abovementioned examples. In particular, when considering that the total annual transfer is $Y. The benefit is not of the kind which is sufficiently disproportionate to be considered insignificant. Accordingly, the benefits returned by the Applicant are material benefits, and therefore, any transfer made by a giver to the DGR on that basis is not a gift for taxation purposes. Applicant's view with regard to item 7 of section 30-15 of the ITAA97. In their application, the Applicant raised item 7 of section 30-15 of the ITAA97 and its application to the proposed fund-raising method. Sub-section 30-15(1) and item 7 of section 30-15 of the ITAA97 provide that you can deduct a gift or contribution that you make from your assessable income where · the recipient is a deductible gift recipient that is a fund, authority or institution covered by item 1 or 2 of section 30-15 of the ITAA97; and · the type of gift or contribution is a contribution of money that is more than $150; and · on the day you made the contribution to attend or participate in the fund-raising event, the GST inclusive market value of the right to attend the event was less than 20% of the amount of your contribution and $150. The Applicant was of the view that this provision did not apply to the proposed fund-raising method because of the '...uncertainty and discretionary nature of the events being held which the members of the Circle are eligible to attend...' The Commissioner agrees that this provision does not apply. However, the reason why the Commissioner is of the view that this provision does not apply is because the maximum contribution available to a donor of $750 and the special conditions are not satisfied. Specifically, the proposed fund-raising method seeks to raise $Y which exceed the thresholds contained at item 7 of section 30-15 of the ITAA97. | Detailed Reasoning - Disclaimer: You cannot rely on the rulings in the Register of private binding rulings in your tax affairs. You can only rely on a private ruling that we have given to you or to someone acting on your behalf. The Register of private binding rulings is a public record of private rulings issued by the ATO. The register is an historical record of rulings, and we do not update it to reflect changes in the law or our policies. The rulings in the register have been edited and may not contain all the factual details relevant to each decision. Do not use the register to predict ATO policy or decisions. 1 Income Tax Assessment Act 1997 sub-section 30-228(1). 2 Re Brian Arthur Leary v Commissioner of Taxation of the Commonwealth of Australia [1980] FCA 112 at 113. 3 Federal Commissioner of Taxation v McPhail (1968) 117 CLR 111 at 116. 4 Re Brian Arthur Leary v Commissioner of Taxation of the Commonwealth of Australia [1980] FCA 112. 5 Hodges v FC of T 97 ATC 2158 at 12-13. 6 Private Ruling Application attachment 1, item 7. 7 Hodges v FC of T 97 ATC 2158 at 12-13; TR 2005/13 Income Tax: tax deductible gifts - what is a gift, paragraph 46. 8 TR 2005/13 Income Tax: tax deductible gifts - what is a gift, paragraph 169. 9 Charities consultative committee resolved issues document <http://www.ato.gov.au/content/16250.htm> (Accessed 11 January 2013).

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