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Edited version of your written advice
Authorisation Number: 1012929171333
Date of advice: 16 December 2015
Ruling
Subject: Gifts
Questions and Answers
Will the Commissioner apply Part IVA of the Income Tax Assessment Act 1936 to deny any tax benefit obtained as a result of gifting trading stock?
No
This ruling applies for the following period
Year ending 30 June 20XX
The scheme commenced on
1 July 20XX
Relevant facts
You are the Managing Director of Company A.
You are also a shareholder of Company A.
Company A carries on a business. The business is in the process of being wound up. The Company held some trading stock which includes slow moving stock acquired over 12 months ago.
The working capital for Company A has since establishment of the company been provided by its directors. As it stands Company A will not be in a financial position that will enable it to repay the directors for funds lent to it.
As part of the winding up process of the business, the remaining trading stock was transferred to the directors at market value in partial satisfaction of the amount owed by Company A.
The directors have now donated the remaining stock to a charitable organisation.
The charitable organisation is a DGR.
The trading stock was donated within 12 months of it being transferred from the Company.
You satisfy the conditions under Section 30-15 of the Income Tax Assessment Act 1997 and are entitled to a deduction for the donation.
Relevant legislative provisions
Income Tax Assessment Act 1936 Part IVA
Income Tax Assessment Act 1936 Section 177A
Income Tax Assessment Act 1936 Section 177C
Income Tax Assessment Act 1936 Section 177D
Reasons for decision
Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) is a general anti-avoidance provision that can apply in certain circumstances if a taxpayer obtains a tax benefit in connection with a scheme, and it can be concluded that the scheme, or any part it, was entered into for the dominant purpose of enabling a tax benefit to be obtained. Part IVA is a provision of last resort.
In order for Part IVA to apply, the following requirements must be satisfied:
• There must be a scheme as defined by section 177A of the ITAA 1936.
• There must be a tax benefit as defined by section 177C of the ITAA 1936, obtained in connection with the scheme
• The scheme must be one to which Part IVA applies, as determined by section 177D of the ITAA 1936, where it would be concluded that the taxpayer (or any other person involved in the scheme) had the sole or dominant purpose of entering into the scheme to obtain the tax benefit.
It is determined that Part IVA would not apply to deny the deduction.
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