This Interpretation Statement by IRD, Issued dated 23 December, 2020, provides guidance on the meaning of “unconditional gift” for GST purposes.
A payment made to a GST-registered non-profit body that is an “unconditional gift” is not “consideration” for a supply of goods or services and is not subject to GST.
Knowing whether payments are unconditional gifts is important for non-profit bodies that are carrying on taxable activities. Non-profit bodies do not have to return GST on payments that are “unconditional gifts”. This also means those payments are not taken into account when a non-profit body is determining whether or not the body exceeds the GST registration threshold and needs to register for GST.
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 nonprofit 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.
Unconditional gifts generally do not include payments made to a non-profit body under a statutory or other legal obligation, including payments made under contractual obligations. This is because those payments are not usually considered to be “voluntarily made” given they are required to be made. They are not made from a person’s own free will. However, a payment made under a sense of moral obligation may still be regarded as being voluntarily made.
The benefit must not be in the form of a supply of goods or services to the payer (or an associated person) “in respect of” the payment. Where the benefit will arise regardless of whether the payment is made, there will not be a sufficient link between the benefit and the payment. An unsolicited “thank you” gift made by a non-profit body to a donor thanking them for making a donation is also an example of a benefit that does not have a sufficient connection with the payment made.
However, where there is a sufficient link between the identifiable direct valuable benefit and the payment so that the payment is made “in respect of” the benefit, the payment is not an “unconditional gift”. The payment will instead be “consideration” for the supply of the goods or services comprising the benefit and will be subject to GST.
On occasions payments may be made to a non-profit body that are not “unconditional gifts” and are not “consideration” for a supply of goods or services. Such payments are not subject to GST.
It is sufficient that an identifiable direct valuable benefit “arises or may arise”. This means that the benefit need not arise when the payment is made, instead the benefit can arise in the future or be contingent on a future event or action occurring after the payment is made. For such a benefit to negate an “unconditional gift” there needs to be a sufficient link between the benefit and the payment.
Amounts donated to a non-profit body for a specified purpose with stipulations as to how the funds are to be used may be 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).
Where a single supply of goods or services is made for an agreed consideration it cannot be split into two parts - with one part being an unconditional gift (and not subject to GST) and the other part being consideration for a supply of goods and services (and subject to GST). The value of a supply is determined by the consideration paid, and there is no ability under the Act for a portion of the agreed consideration to be notionally treated as an unconditional gift.
A payment made by the Crown or a public authority to a non-profit body is not an unconditional gift.
While the issue of whether koha is an unconditional gift is not specifically addressed in this Interpretation Statement some of the analysis may be helpful. Further guidance on the GST treatment of koha can be found on Inland Revenue’s website at https://www.ird.govt.nz .
The detailed interpretation statement is available on https://www.ird.govt.nz
Source: IRD
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