The ATO advises that donors take care if considering making a donation of property purchased by instalment contract or vendor finance; in particular where the vendor financing involves long term low or no interest loans.
For a donor to claim a deduction for a gift, there are several requirements:
- the gift must be made to a deductible gift recipient (DGR)
- the payment must really be a gift
- the gift must be of money or property that is covered by one of the deductible gift types, and
- any gift conditions must be satisfied.
There are also several requirements to be a gift, the most essential of which is that there has to be a transfer of money or property.
If money or property has not been transferred to a DGR or if the 'donor' does not own the item being transferred, that person may not claim a tax deduction for a gift.
Before making a gift of property, donors should always check that they own the property. For example, under some vendor finance purchase agreements the buyer is not the owner of the property until the final payment is made.
Property has a wide meaning for gift purposes. As well as physical things, it includes rights and interests that are capable of ownership and have a value.
For property (other than trading stock and certain public shares) purchased during the 12 months before donating it, the amount the donor may claim is the lesser of:
- the market value of the property on the day the gift was made, and
- the amount the donor paid for the property.
Whether the market value of the property on the day the gift was made is above or below the amount paid for the property is a matter of fact. It is up to the donor, not the DGR or the vendor, to find out the market value of the gift.
Donors should seek advice if concerned about the amount that can be claimed, if payment instalments fall due over an extended period, or if vendor finance is offered at low or no interest rates over an extended period.
There is no gift deduction where a person enters into an arrangement in relation to the making of a gift and
- the value of the gift to the DGR is, or would be expected to be, less than the value of the gift at the time the gift was made
- any other organisation makes, or may reasonably be expected to make, payments to other persons in relation to the gift
- the donor or an associate obtains, or would be expected to obtain, any benefit other than the benefit of a tax saving, or
- the DGR or another fund, authority or institution is to acquire property from the donor or an associate.
For more information about market valuations, see Market valuation for tax purposes. It covers real property, plant and equipment, businesses, securities and intangible assets. Some deductible gift types have special valuation rules. These are explained in the Gift types chapter of our publication GiftPack (NAT 3132).
For more information about deductible gifts, see the Donors and gifts chapter of our publication GiftPack (NAT 3132). It covers a number of topics including:
- deductions for gifts of property valued by the ATO at more than $5,000,
- capital gains and other consequences of making gifts, and
- record keeping requirements.
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Last Modified: Wednesday, 1 September 2010