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Edited version of private advice
Authorisation Number: 1012623422893
Ruling
Subject: Income Tax - deductible gift recipients - gifts of trading stock
Question
What value is used for gifts of trading stock made outside the ordinary course of business donated to an endorsed deductible gift recipient (DGR)?
Answer
The value of the donation is taken to be the market value of the stock on the day the gift was made.
This ruling applies for the following periods:
Year ending 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
The scheme commences on:
1 July 2013
Relevant facts and circumstances
The Association is an endorsed deductible gift recipient (DGR) under item 4.1.1 and has been endorsed from 1 July 2000.
The Association continuously seeks food donations from various sources.
The Association advises prospective donors of the rules for the gifting of trading stock and the use of market value for the gifted produce.
Farmers, vegetable and fruit growers are the main targets for donations.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 30-15;
Income Tax Assessment Act 1997 section 70-10;
Income Tax Assessment Act 1997 subdivision 960-S;
Income Tax Assessment Act 1997 section 995-1.
Anti-avoidance rules
N/A
Reasons for decision
Gifts or donations may be deductible under Division 30 of the Income Tax Assessment Act 1997 (ITAA 1997). To be accepted as a gift for tax purposes, donations must be made voluntarily, not provide a material benefit for the donor and essentially arise from benefaction and a detached and disinterested generosity on behalf of the donor.
Section 30-15 of the ITAA 1997 and the accompanying table stipulates how and when a gift may be deductible.
As per Item 1 in the table of section 30-15 of the ITAA 1997, to obtain a tax deduction for a gift the recipient of the gift must be a fund, authority or institution covered by an item in any of the tables in Subdivision 30-B of the ITAA 1997.
The types of gift or contribution that can be deductible as listed under Item 1 in the table of section 30-15 of the ITAA 1997 are gifts of:
(a) money; or
(b) property (including trading stock) that you purchased during the 12 months before making the gift; or
(c) an item of your trading stock if:
• the gift is a disposal of the item outside the ordinary course of your business; and
• no election has been made, or is made, in relation to the item under subdivision 385-E (about electing to spread or defer profit from the forced disposal or death of livestock); or
(d) property valued by the Commissioner at more than $5,000; or
(e) shares that you have acquired in a listed public company if:
• the shares are listed for quotation in the official list of stock exchange that is listed under the heading "Australia" in regulations made for the purposes of the definition of approved stock exchange; and
• the market value of the shares on the day you made the gift is $5,000 or less; and
• you acquire the shares at least 12 months before making the gift.
Item 1 states you can claim a deduction for so much of the gift:
(a) if the gift is money - the amount you are giving; or
(b) if the gift is property (except trading stock covered by paragraph (c), property covered by paragraph (d) or shares covered by paragraph (e)) - the lesser of the market value of the property on the day you made the gift and the amount you paid for the property; or
(c) if the gift is an item of your trading stock:
• that you disposed of outside the ordinary course of your business; and
• for which no election has been made, or is made, in relation to the item under Subdivision 385-E;
the market value of the item on the day you made the gift; or
(d) if the gift is property valued by the Commissioner at more than $5,000 and you did not purchase the property during the 12 months before making the gift - the value of the property as determined by the Commissioner; or
(e) if the gift is shares described in paragraph (e) of the previous column - the market value of the shares on the day you made the gift.
Gifts of trading stock
Gifts of trading stock disposed of outside of the ordinary course of business can be tax deductible in some circumstances.
Subsection 70-10(a) of the ITAA 1997 states that trading stock is anything produced, manufactured or acquired that is held for the purposes of manufacture, sale or exchange in the ordinary course of business.
Gifts of trading stock disposed of outside the ordinary course of a business will be able to be tax deductible to the donor if both of the following conditions are met:
• the gift is a disposal of the trading stock outside the ordinary course of the donor's business, and
• if the gift involves the forced disposal or death of livestock - no income tax election has been made to spread or defer the profit.
The gift deduction that can be claimed by the donor is the market value of the trading stock on the day it is donated to a DGR (provided the deduction does not add to or create a tax loss).
The donor may also need to include the market value in assessable income under the general rules for income tax. For trading stock disposed of as a gift outside the ordinary course of business, the stock's market value is normally included in the donor's assessable income.
Market value
"Market value" is defined as the market value of the asset, less any input tax credits. The ordinary meaning of "market value" is the price that a willing but not anxious buyer would have to pay to a willing but not anxious seller of the item (Spencer v Commonwealth (1907) 5 CLR 418).
"Market value" of non-cash benefits is defined in ITAA 1997 in subdivision 960-S as:
Section 960-410 Market value of non-cash benefits
960-410 In working out the market value of a *non-cash benefit, disregard anything that would prevent or restrict conversion of the benefit to money.
"Non-cash benefit" is defined in section 995-1 of the ITAA 1997 as:
Non-cash benefit is property or services in any form except money. If a non-cash benefit is dealt with on behalf of an entity, or is provided or dealt with as an entity directs, the benefit is taken to be provided to the entity.
Application to Your Circumstances
The Association is an endorsed DGR, and donations of trading stock are received from donors.
As the recipient of the gift, the Association does not provide a material benefit for the donation.
A deduction will therefore be allowed to the donor at the market value of the donations on the day that the donation is made.
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