IS 20/09 was released by IR just prior to Christmas, and provides commentary on the subject of unconditional gifts and GST. Determining whether a payment made to a non-profit body is an unconditional gift is important from the non-profit body’s perspective, both in establishing whether the payment is subject to GST as consideration for a supply of goods or services (for a GST registered non-profit body), or whether an unregistered non-profit body should in fact be GST registered due to exceeding the registration threshold.
A payment made to a non-profit body is an ‘unconditional gift’ where:
- the payment is voluntarily made for the carrying on or carrying out of the non-profit body’s purposes; and,
- no ‘identifiable direct valuable benefit’ in the form of a supply of goods and services to the payer (or an associated person) arises or may arise in respect of the payment.
Where a statutory or legal obligation to make the payment exists, it is unlikely that the payment would be considered to have been made voluntarily.
In relation to whether there is an ‘identifiable direct valuable benefit’ arising from the payment, IS 20/09 defines this to mean an advantage or gain in the form of a supply of goods or services to the payer (or an associate of the payer) which is:
- clearly able to be defined or identified;
- sufficiently closely connected to the payment;
- useful, important and of real value;
- capable of being valued; and,
- not of only nominal worth.
Note that the benefit need not arise when the payment is made, and instead the benefit can arise in the future or be contingent on a future event or action occurring after the payment is made.
Amounts can also be donated to a non-profit body for a specified purpose with stipulations as to how the funds are to be used and still qualify as unconditional gifts, provided no identifiable direct valuable benefit arises or may arise in the form of a supply of goods and services for the payer (or an associated person).
Finally, a payment made by the Crown or a public authority to a non-profit body is not an unconditional gift.