IRD currently have a draft QWBA for comment which aims to clarify when payments by individual taxpayers will be considered to be gifts for income tax purposes, under section LD 1. This is relevant as to when a donee organisation can issue a receipt and the supporter can claim the donation tax credit.
As a gift is not defined in legislation, the Commissioner relies on key principals established in overseas case law, as case law is limited on the meaning of “gift”. The Commissioner considers that a “gift” in terms of section LD 3(1), which is a payment of $5 or more is that which is:
- Made voluntarily,
- by way of benefaction, and
- for which the supporter receives no benefit of a material character in return.
In determining the true nature of the payment the overall arrangements will be considered.
A key part of the discussion is what the Commissioner believes is a benefit of material character, and considers that this includes a benefit or advantage which is something of substance and which can be valued and/or owned. Also noted is that the benefit need not come directly from the donee organisation, but a sufficient link between the payment and benefit must exist.
Examples of where a donation will and will not be considered to be a gift are provided by the Commissioner, such as a meal at a charity ball provided to the supporter who purchased a ticket (not considered a gift). Also discussed are situations where the benefit can be overlooked, where gifts are made for specific purposes, and whether part of a payment can be considered to be a gift.
Seven examples are provided on common fundraising activities and the Commissioners view.
If you or your clients are done organisations then this is worth reviewing. The deadline for comments are due 11th February 2016.