Private ruling: Donations
Date of advice: 25 August 2017
Published: December 2017
Ruling period: Year ended 30 June 2016
Date scheme commenced: July 2015

Ruling: Q1: Are you entitled to claim a deduction for the hire of a vehicle and transport costs when sending used clothing overseas? | A1: No. | Q2: Are you entitled to claim as a donation the costs of hiring a vehicle and transport costs in sending used clothing overseas? | A2: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 30-15 | Income Tax Assessment Act 1997 Section 30-25

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. A number of significant court decisions have established that, for an expense to satisfy the requirements of section 8-1 of the ITAA 1997: It must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income producing expense ( Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166) There must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income ( Ronpibon Tin NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236); and It is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces their assessable income ( Charles Moore & Co Pty Ltd v. Federal Commissioner of Taxation (1956) 95 CLR 344; (1956) 11 ATD 147; (1956) 6 AITR 379 and Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 5570. Although it is not in your job description to send aid to the church overseas, you feel it is your responsibility to assist the needy where you can. There is insufficient nexus between the costs associated with the transport of the goods overseas for the outgoing to be incidental and relevant to the gaining of your assessable income. In your case, you have paid for the hire of a vehicle and overseas freight costs. The costs incurred are related directly to the transport of the used clothing, not to the derivation of your income. Consequently you are not allowed a deduction under section 8-1 of the ITAA 1997 for the cost of hiring a vehicle and cost of freight expenses. | Detailed Reasoning - Donation to a Deductible Gift Recipient: Division 30 of the 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 or 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 the 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. The recipient of the used clothing does not meet the definition of a DGR. A DGR has Australian tax exemption, and is registered with the Australian Taxation Office. The orphanage that you sent the clothing to overseas is not on the list of registered DGR’s, and so donations and gifts to the orphanage are not made to a DGR. Since your donation does not meet all the conditions of a ‘gift’ under Division 30 of the ITAA 1997, you are not eligible to claim a deduction in the income year the gift was made to the orphanage.

Relevant facts: You organised a charity drive to collect used clothing to be sent to the needy overseas. | You paid for the hire of a vehicle and the cost of freight out of your own funds. | Any donations given to you during the project were used to purchase more clothing items. | The goods were sent to an orphanage overseas. | Part of the work you do is to provide for the needy. | It is not in your job description to organise charity drives as such, but in your role you help where you can.