GST issues registers

Charities consultative committee resolved issues

Part 4 - Fundraising, gifts and donations

Issue 1: How will revenue-raising activities such as sponsorships (including 'in kind' sponsorships and 'contras'), gala events and membership fees be treated?

Non-interpretative - straight application of the law

Principle

There is a need to differentiate between the different types of revenue raising activities.

Sponsorships usually require the recipient to do something, for example, provide advertising. The provision of these rights is a taxable supply. The sponsor will generally be entitled to input tax credits where it has been made as part of carrying on their enterprise.

Membership fees and gala events are generally payments in return for services or rights and therefore will be subject to GST.

Other revenue raising events by a charity which is registered for GST and where the supplies are for nominal consideration or a supply of second hand goods will be GST-free. Raffles and bingo conducted by charities are GST-free. Most other supplies made by charities will be taxable. Charities will be able to claim input tax credits for acquisitions used to make taxable or GST-free supplies.

Issue 2: How will gifts and donations be treated under GST?

Non-interpretative - straight application of the law

Principle

Gifts to non-profit bodies are not consideration

For a payment to be considered a gift it must be unfettered, that is, there must be no obligations to do anything in recognition of the gift and no expectation on the part of the donor to receive anything in return for donation. The definition of a gift is contained in Division 30 ITAA 1997.

Paragraph 9-17(2) specifically excludes a gift made to a non-profit body from being consideration for a supply. 'Gift' and 'non-profit body' are the essential terms in this paragraph. It follows that if there is a gift to a non-profit body there will not be a taxable supply, unless there is another supply made for the consideration (gift).

A payment will not be a gift where there is a contractual obligation on the part of the charity or non-profit organisation to use the funds in a specified way or the provision of a material benefit to the donor.

A payment made in return for a material benefit or an enforceable obligation to use the funds for a specified purpose is consideration for a supply. The organisation receiving the payment has supplied something in return for the payment.

Specific questions and answers

Question 1. How are tokens given in return for donations treated under GST?

Non-interpretative - straight application of the law

Fundraising activities by charities will not be subject to GST where the charity is receiving gifts. Many charities give a token to a donor in return for the donation. Providing the donor is not receiving a material benefit in return for the payment, there are no GST consequences.

A donor does not receive a material benefit if the token given in return for the payment is an item that merely promotes the charity or advertises its activities. Such items include lapel badges, bumper stickers, red noses, Legacy pins, or daffodils on Daffodil Day. Information received about the charity and its activities is unlikely to be a material benefit.

Where the token received has utility and value, the donor receives a material benefit. Items such as pens, calendars, chocolates, key-rings and mugs are usable items which provide a benefit to the donor. This means the donation is not a gift and will be subject to GST (unless the item is GST-free or input taxed).

However, if the value of the useable item is insignificant in comparison with the amount of the donation, then the donation will be a gift and will not be subject to GST. For example, a benefit in the form of a key-ring might be immaterial when considering a transfer of $400 but significant for a $4 payment.

Other circumstances - such as whether the useable item merely promotes the charity or is provided to the donor irrespective of the amount donated - may also indicate that the useable item does not provide a material benefit to the donor and is therefore a gift and not subject to GST.

If the donation is not a gift and is subject to GST, the charity must remit to the ATO 1/11th of the donation as GST. The donor will be entitled to claim a GST credit for the GST included in the amount paid, provided they are registered for GST, and the donation has been made as part of the donor's business activities.

For more information of the meaning of a gift refer to Taxation Ruling TR 2005/13.

Question 2. When is a payment considered sponsorship rather than a gift or donation?

Non-interpretative - other reference (see TR 2005/13 Income tax: tax deductible gifts - what is a gift)

Where money is provided in return for a supply of advertising a registered organisation receiving the funds will be required to remit 1/11th of the amount received as GST. The organisation making the payment can claim an input tax credit for the GST paid provided they are also registered for GST. Where both parties are registered for GST the organisation making the payment can increase the amount to take the GST into account, thereby making the overall impact of the GST nil for both parties.

Contra sponsorship

Where goods or services are provided in return for advertising this is a contra sponsorship arrangement. Assuming both organisations are registered for GST they are making taxable supplies to one another. Each party will have a GST liability for the supply they have made and an input tax credit entitlement for the acquisition they have made (assuming it is a creditable acquisition). Where the value of the supplies is equal the net amount of GST for the whole transaction is zero. This is because each party makes a taxable supply and a creditable acquisition of the same value - the GST collected and the input tax credit entitlement are the same. Each party would however need to record both the supply and the acquisition.

Question 3. Fundraising events - How do the provisions work?

Non-interpretative - straight application of the law

An endorsed charity, a gift deductible entity or a government school may choose to treat certain types of fundraising events as input taxed.

If an organisation chooses to treat a fundraising event as an input taxed fundraising event, it treats all sales it makes in connection with the event as input taxed. That is, the organisation will not be required to charge GST on the sales it makes and will not be entitled to claim GST credits for any acquisitions in relation to the event.

An organisation must make its choice to treat all sales in connection with a fundraising event as input taxed prior to any transactions in relation to the fundraising event taking place.

For more information on fundraising events that are treated as input taxed events refer to Fundraising (NAT 13095).

Question 4. What is the definition of a raffle?

Non-interpretative - straight application of the law

A raffle is a game of chance where the prizes are either goods or cash or a combination of the two. Where the prize is cash only the charity must be careful that they do not contravene state lottery laws. A supply of a raffle that contravenes the state lottery laws will not be GST free.

Question 5. How will the ATO deal with minor or unintended breaches of state and territory law with regards to raffles and bingo?

Raffles or bingo run by charities will be GST-free if conducting the raffle or bingo does not contravene a state or territory law.

Generally each state or territory has enacted law to regulate the conduct of lotteries, gaming, art unions, bingo and so on. The relevant State or territory law ('the law') may provide rules which the operators must comply with. If an operator breaches any of those rules, it may be guilty of an offence under the law.

The law may require an operator to hold a licence or an authority before it may conduct a raffle or bingo. For example, Regulations under the Lottery and Gaming Act 1936 (SA) provides that an operator must hold a lottery licence if the prizes of the raffle exceed $2,000 in value or a bingo licence if the gross proceeds of the bingo session exceed $200. It is an offence to conduct the raffle or bingo if the operator does not hold a licence. Therefore, for GST purposes, if a South Australian charity conducting such a raffle or bingo has not obtained the relevant licence under the law, the supply of the raffle or bingo will not be GST-free.

A charity holding the required licence or authority for running a particular raffle or bingo may commit an offence if it breaches a rule under the law. For example, the grant of a licence under the South Australian law may be subject to certain conditions. In the event of or failure to comply with any of the conditions, the charity is guilty of an offence. However, for GST purposes, such a breach or failure will not cause the supply of a raffle or bingo to stop being GST-free and to become taxable. For as long as the charity holds a licence for a particular event the supply will be GST-free.

The ATO does not plan to issue any regulations with respect to raffles and bingo run by charities at this time.

Question 6. How wide will be the definition of raffle and bingo as GST-free activities? Are lotteries, art unions and lucky wheels considered to fit within these definitions?

Non-interpretative - straight application of the law

Supplies of raffles and bingo by charitable institutions are GST-free if they do not contravene state or territory law. Generally, when activities require the purchase of a ticket and are liable to chance then they will be considered GST-free.

Question 7. Under what circumstances will memberships be subject to GST? Is there a clear distinction that can be drawn between membership fees and donations?

Non-interpretative - straight application of the law

Generally, membership fees are payments in return for services or rights and will be subject to GST. Membership bestows rights to members even where nothing tangible is supplied.

Gifts are considered under Taxation Ruling TR 2005/13. Paragraph 13 of this ruling states:

Rather than attempting a definition of gift, the courts have described a gift as having the following characteristics and features:

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there is a transfer of the beneficial interest in property

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the transfer is made voluntarily

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the transfer arises from benefaction, and

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no material benefit or advantage is received by the giver by way of return.

Given the view above regarding gifts, memberships would not be treated as gifts.

The commercial activities of charities will be taxable but the supplies made for nominal consideration by charities will be GST-free. Anything supplied by an endorsed charity (if registered for GST) is GST-free if the consideration is less than either 50% of the GST inclusive market value or less than 75% of the 'cost of supply'. It is open for a charity to demonstrate that the membership fee is less than either 50% of the GST inclusive market value of the membership or 75% of the cost of providing the membership rights.

Question 8. How will basic fundraising ventures such as chocolate drives, book clubs, trivia nights and fetes be treated?

Non-interpretative - straight application of the law

Unless the endorsed charity, gift deductible entity or government school chooses to treat the fundraising event as input taxed under Subdivison 40-F, the supply of new goods at these activities is generally taxable. Where the supply is by a charity and is for consideration less than 50% of the GST inclusive market value or 75% of the 'cost of supply' it will be GST-free. Where the supplies are taxable or GST-free the GST registered charity is entitled to full input tax credits for all their acquisitions that relate to these supplies.

Question 9. A significant amount of fundraising activities includes the sale of donated food that is sold in its donated form or is reprocessed to form a suitable product for sale (for example, making scones or cakes from donated goods and to be sold at a charity stall)? What will be the GST treatment on the sale of such things as cakes, scones, etc. in these circumstances?

Non-interpretative - straight application of the law

Unless the endorsed charity, gift deductible entity or government school chooses to treat the fundraising event as input taxed under Subdivison 40-F, the supply of donated new goods at a fundraising activity (where the organisation is registered for GST) would be taxable. A supply of donated second hand goods is generally GST-free provided there is no change in the original character of the goods (for example material made into stuffed dolls and sold would not be GST-free). Cakes that are sold at fetes for greater than 50% of the GST inclusive market value would be subject to GST even though the materials for those cakes were donated.

Where the supply is by a charity and is for consideration less than 50% of the GST inclusive market value or 75% of the 'cost of supply' it will be GST-free. Where the supplies are taxable or GST-free the charity is entitled to full input tax credits for all their acquisitions that relate to these supplies.

Question 10. In regard to the price of a fundraising dinner, can the price be considered to have a donation component thereby bringing down the cost to less than 50% market value and therefore no longer considered to be a taxable supply?

Non-interpretative - straight application of the law

Unless the endorsed charity, gift deductible entity or government school chooses to treat the fundraising event as input taxed under Subdivison 40-F, the price charged for a fundraising dinner is consideration for a taxable supply where the organisation running the event is registered. The person attending is receiving material benefit and therefore no part of the price paid can be considered a gift.

The donation component of a fundraising dinner would not be considered to be a gift.

Question 11. Fundraising events such as dinners, auctions and the like, involve the sale of donated goods. What is the treatment of inputs and outputs in these circumstances?

Non-interpretative - straight application of the law

Unless the endorsed charity, gift deductible entity or government school chooses to treat the fundraising event as input taxed under Subdivison 40-F, the supply of new goods at fundraising events which are donated by a business that originally purchased it for manufacture, sale or exchange will be subject to GST.

For details regarding the GST treatment of the sale of donated second hand goods by charities see Part 6 of this document and our publication Fundraising (NAT 13095).

Question 12. For those organisations with gift deductibility status, how will fundraising activities based on the concepts inherent in the Donor Club model be treated?

Non-interpretative -straight application of the law

Generally, where the item received by the person is of insubstantial value and in the nature of a receipt and the intention of the person was to donate money rather than purchase an item the activity would be considered to be a donation.

Question 13. With regard to donations, what is a material benefit? When is there a contractual agreement? How does the grants' ruling affect the treatment of donations by charitable trust foundations?

Non-interpretative -other references. See:

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TR 2005/13 Income tax: tax deductible gifts - what is a gift

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GSTR 2012/2 - Goods and services tax: financial assistance payments.

Material benefits

The following are not considered to be a material benefit in relation to the making of a donation:

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Listing of donors on a donor board. That is, a mere acknowledgment and not advertising.

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The provision of a gift which is directed towards a specific benefit to a person who is not an associate of the donor. For example, 'this donation is to be used to provide braille books for children undertaking studies towards the NSW Higher School Certificate'.

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The provision of a gift in response to a specific or general appeal for a specified purpose. An example of this is an appeal to help victims of a natural disaster.

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The provision of a mere acknowledgment or items of insubstantial value (for example a cup of tea) as the result of a gift.

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A thank you lunch or dinner to volunteers working for an organisation where there is no pre-existing agreement that such provision will be made.

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Membership of a donor club whether or not the member has any voting right provided the member receives no material benefit. This will be a matter of degree but an example would be a club where the donor receives things like a certificate and an infrequent newsletter or a report upon the progress of projects funded by the donations. The purpose of the newsletter or report is to encourage further donations by the members.

The following are considered to be a material benefit in relation to the making of a donation:

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Membership of a donor club where rights other than voting rights are bestowed on the member. An example is where a health promotion body provides to the member, amongst other things, advice about their symptoms and medication and a quarterly newsletter.

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The recipient of the donation confers an entitlement on the member to discounted prices at functions or events organised and goods or services supplied by it.

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The recipient of the donation confers an entitlement on the member to use its facilities.

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The donor provides advertising (rather than mere acknowledgment) to the member.

Question 14. Can a receipt that is issued for another purpose (for example tax invoice) also be a gift receipt for the purposes of section 30-228 of the Income Tax Assessment Act 1997?

Non-interpretative - straight application of the law

Section 30-228 requires that receipts issued by deductible gift recipients state:

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the name of the fund, authority or institution

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the ABN of the deductible gift recipient, and

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the fact that the receipt is for a gift. This is in addition to the usual information contained in a receipt - date, amount, payer's and payee's names, etc.

For a receipt issued for dual purposes, one of which is for a gift, to be acceptable under section 30-228 it must be issued by a deductible gift recipient and contain the information set out above. This means that a deductible gift recipient endorsed only in respect of a fund, authority or institution that it owns or operates must state the name of the fund, authority or institution and that the gift is to that fund, authority or institution. A receipt issued by an organisation that is not a deductible gift recipient is not issued in accordance with section 30-228.

Question 15. Would the GST apply where a corporation makes a payment to a charity that offsets their costs on the basis the charity acknowledges the corporate sponsor some way? Would GST treatment be different if the 'in kind' sponsorship was provided for a specific activity conducted by the charity?

Non-interpretative - straight application of the law

The payment to the charity (if registered for GST) would be consideration for a supply, for example, advertising and therefore subject to GST. The value of the 'in kind' sponsorship would be the basis for determining the consideration for the supply.

Question 16. Are all donations to:

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a GST registered organisation, and endorsed as a deductible gift recipient (DGR) liable for GST?

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a GST registered organisation, and not endorsed as a DGR, liable for GST?

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an organisation not registered for GST, and endorsed as a DGR, liable for GST?

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an organisation not registered for GST, and not endorsed as a DGR, liable for GST?

Non-interpretative - straight application of the law

As stated above, gifts are not subject to GST.

Question 17. What is the effect of GST on tax-deductible donations?

Non-interpretative - straight application of the law

The donating of monies has no GST consequences provided the payment is truly a gift.

Question 18. When do tied donations cease to be GST-free?

Non-interpretative - straight application of the law

The elements of a gift are discussed above. A 'tied' gift will generally have no GST implications provided the payment meets the requirements of a gift discussed earlier. If the recipient of the donation has called for donations for a specific purpose, this will not affect the nature of the payment. Importantly, there is no material benefit flowing back to the donor.

Question 19. Are preference donations subject to GST?

Non-interpretative - straight application of the law

Where a donor makes a donation and communicates a wish for the monies to be used for a specific purpose, this will not affect the nature of the payment. Provided the donor does not receive a benefit in return, and the recipient is not contractually obliged to spend the monies toward a specific purpose, the payment will constitute a gift. Gifts are not subject to GST.

Question 20. What if a membership was granted prior to 1 July 2000 but extends beyond 1 July 2000?

Non-interpretative - other reference (see GSTR 2000/7 - Goods and services tax: transitional arrangements - supplies, including supplies of rights, made before 1 July 2000 and the extent to which such supplies are taken to be made on or after 1 July 2000)

Membership of a club or organisation is generally provided on a periodic or progressive basis. Where the supply of membership is for a specified period of time that commences on or before 1 July 2000 and finishes after that date, it will be taken as having been supplied continuously and uniformly over that period.

The following examples illustrate the treatment of memberships that span 1 July 2000.

Example 1

Jan pays her annual membership of the Australian Bushwalkers Association on 1 April 2000. As the membership is a supply for a period that spans 1 July 2000, it is taken to have been made continuously and uniformly over the period 1 April 2000 to 31 March 2001. That portion of the membership that relates to the period on or after 1 July 2000 will be subject to GST.

Question 21. What if a life membership was sold prior to 1 July 2000?

Non-interpretative - straight application of the law

The following table explains the treatment of life memberships.

Question 22. What are the tax invoice requirements that must be satisfied in regard to memberships?

Non-interpretative - other reference

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GSTR 2013/1 - Goods and services tax: tax invoices

In some situations, you issue a document before it is certain that you will make a supply because the document is merely an offer. Examples are insurance renewal notices, motor vehicle registration and subscription notices. Supplies made by subscription include subscriptions to trade magazines, online legal research and subscriptions to professional associations. In these situations, there is no supply until the recipient accepts the offer. In many cases, the recipient accepts the offer by making a payment.

An offer of membership or renewal notice is not a valid tax invoice because the supplier cannot be certain that a taxable supply will occur when the document is issued.

Question 23. What is the difference between raffles and lotteries?

Non-interpretative - straight application of the law

A raffle is a game of chance where the prizes are either goods or cash or a combination of the two. Where the prize is cash only the charity must be careful that they do not contravene state lottery laws. A supply of a raffle that contravenes the state lottery laws will not be GST free.

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