Taxation Determination

TD 93/139

Income tax: is a payment of money to an eligible 'umbrella' organisation under a 'preferred donation arrangement' a tax deductible gift if the donor taxpayer or an associate obtains a collateral benefit?

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FOI status:

may be releasedFOI number: I 1215621

1. No. The payment would not be tax deductible for the purposes of section 78 of the Income Tax Assessment Act 1936 . Section 78A specifically disallows a claim for a 'gift' where the donor or an associate receives a material benefit.

2. For the purposes of section 78 a tax deductible gift requires a donor to transfer property voluntarily to an eligible donee organisation without the donor or an associate of the donor receiving or being entitled to receive in return any material advantage or compensation (apart from the tax saving). The recipient organisation must:

(a)

obtain in its own right the full value or benefit of the property; and

(b)

be empowered and have the absolute discretion to distribute the property to those organisations or activities nominated by the donor.

3. A 'preferred donation arrangement' generally involves a person donating money to an eligible 'umbrella organisation'. There is an understanding that the money will be passed on to an affiliate organisation preferred by the donor to fund projects or events nominated by the affiliate and approved by the umbrella organisation.

4. An eligible 'umbrella organisation' is one which covers a number of affiliated groups. The 'umbrella organisation' is approved for tax purposes as an eligible donee organisation and can receive tax deductible gifts on its own behalf or on behalf of its affiliates.

5. A payment to an eligible organisation under a preferred donation arrangement that satisfies subparagraphs 2 (a) and (b) above may be tax deductible. However, in situations where the donor or an associate receives a material benefit from the donee or the affiliate organisation because of a payment to the 'umbrella organisation' no deduction is allowable.

Example:

An eligible 'umbrella' organisation operates a 'preferred donation arrangement' for affiliated organisations.

Participants in an approved event nominated by the affiliate are obligated to fund some of the cost of participation either by paying directly for their travel expenses or by making 'preferred donations' to the 'umbrella' organisation. A participant makes an appropriate donation to the 'umbrella' organisation. The 'umbrella' organisation passes the donated funds to its affiliate organisation and the participant is not required to pay travel expenses.

In this instance the donation to the 'umbrella' organisation would not be a deductible gift because the donor will receive a collateral material benefit from the donation - that is, removal of the obligation to pay travel expenses.

Commissioner of Taxation
15/7/93

Previously released as Draft TD 93/D61

References

ATO references:
NO can ac752Pt10

Related Rulings/Determinations:

IT 2071
IT 2443

Subject References:
gifts,
preferred grants;
umbrella organisations

Legislative References:
ITAA 78(1)(a);
78A