Eligibility Q&A – Deductibility of optional payment made to a DGR simultaneously with a payment to attend a fundraising function.

Question:

The enquirer is a government body that conducts an art gallery, the ABC Gallery, under the auspices of the enquirer’s ABN. The enquirer will hold a fundraising function in conjunction with the separate XYZ Foundation (which has its own ABN).

The Foundation is endorsed as a Deductible Gift Recipient (DGR). It is a public ancillary fund covered by Item 2 of the table in section 30-15 of the ITAA 1997.

Can you advise if the following proposal is acceptable under the DGR status of the foundation?

•     It is proposed to sell tickets to the fundraiser made up of two components:

•     $P to ABC Gallery for the ticket to the fundraising function; and

•     (Optional) $N as a DGR donation to the Foundation.

What is required to satisfy the ATO that the $N donation is an eligible tax deductible donation under the Foundations DGR status?

 

Answer:

It is understood that:

The ABC Gallery (ABC) is holding a function for which attendees will pay $P per head in order to attend.

•     ABC does not contemplate that attendees will be entitled to any income tax deduction in relation to any part of the attendance charge of $P.

•     The XYZ Foundation (the Foundation) intends to solicit donations of $N per head from attendees. The payment of $N is optional – in particular, a person can attend the function on payment of the $P charged by ABC and without payment of any amount to the Foundation.

•     Payment of the $N donation does not entitle an attendee to any benefit.

•     The Foundation is a public ancillary fund covered by Item 2 of the Table in s 30-15 ITAA 1997.

Is the proposal acceptable under the DGR Status of the Foundation?

A monetary gift of $2 or more to an ancillary fund covered by Item 2 of the Table in s 30-15 is tax deductible. It should be especially noted that the monetary payment must be a gift. Given that the payment of $N will not entitle any person (whether the payer or otherwise) to a benefit as a result of making the payment, it is expected that the payment will be a gift and the test will be met.

What is required to satisfy the ATO that the $N donation is an eligible tax deductible donation under the Foundations DGR status?

The Foundation should ensure that:

•     the optional nature of the payment is made clear in all advertising – i.e. prospective attendees should readily appreciate that the payment does not form part of acquiring the right to attend the function; and

•     the Foundation is identified in all advertising soliciting an $N donation as the recipient of the donation.

In conformity with the Public Ancillary Fund Guidelines, the Foundation should issue (upon request) a receipt for each gift it receives. The receipt should include the Foundation’s name, ABN, the name of the donor, the amount of the gift and state that the receipt is for a gift received by the Foundation.