Edited version of private ruling

Authorisation Number: 1011467307636

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Ruling

Subject: Deductibility of Donation

Question and answer

Can you claim a deduction for a donation/gift of money you make to an endorsed deductible gift recipient?

Yes

Can it be objectively concluded that you intend to enter into the scheme for the sole purpose of obtaining the tax benefit thereby resulting in the application of Part IVA?

No

This ruling applies for the following period/s:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You are the sole share holder and decision maker of the Company.

The Company owns a parcel of land at AA (the property). This land is a pre-CGT asset.

You have advised that you decided some time ago to donate the property.

Party yy has agreed to buy the property for $xx. Party yy is an endorsed deductible gift recipient. The agreed amount was determined through an independent valuation.

You have the intention of donating an equivalent amount of cash to the endorsed deductible gift recipient (DGR). You advised that you currently have the funds available to make the donation, and will not necessarily wait until the sale of the property by the Company to party yy is completed before personally donating the funds.

In support of your application, You have provided a copy of an email etween Party yy and the DGR which discusses the requirement for an independent valuation of the property.

You have advised that there will be no conditions attached to your donation to the DGR requiring your donation be given to Party yy to assist them with the purchase of the property. However, you have advised that it is your hope that this is what will occur.

The tax return for the Company discloses a total profit for the 2009 financial year of $xx with carried forward losses of $xx.

Relevant legislative provisions

Section 30-15 of the Income Tax Assessment Act 1997

Section 177D of the Income Tax Assessment Act 1936

Section 78 of the Income Tax Assessment Act 1936

Section 30-247 of the Income Tax Assessment Act 1997

Section 30-248 of the Income Tax Assessment Act 1997

Reasons for decision

Division 30 of the Income Tax Assessment Act 1997 (ITAA 1997) deals with the deductibility of gifts or donations.

A deduction is subject to the following conditions:

· the payment must truly be a gift in that it is voluntary and it does not provide a material benefit to the donor, such as, raffle tickets;

· it must be made to a deductible gift recipient, as acknowledged by the Australian Taxation Office; and

· it must be a gift of money of $2 or more; or

· it must be a gift of property (conditions apply).

A donation you make is deductible under section 30-15 of the ITAA 1997 provided the recipient meets the definition of a deductible gift recipient under section 30-227 of the ITAA 1997.

A gift requires a detached and disinterested generosity and the donor must not receive a material benefit or advantage in return for the gift: Taxation Ruling IT 2071; Taxation Determination TD 92/110; ATO ID 2001/374.

The gift must proceed from a motive of benefaction, but that need not be the sole motivation. A motive of seeking a tax deduction does not, by itself, disqualify the donation from being a gift: FCT v. Coppleson (1981) 12 ATR 358; (1981) 57 FLR 234. Section 78A of the Income Tax Assessment Act 1936 (ITAA 1936) denies a deduction where, by reason of the making or receipt of the gift or any scheme or arrangement associated with the gift:

· the amount or value of the benefit derived as a consequence of the gift is, or will be, or may reasonably be expected to be, diminished subsequent to the receipt of the gift: section 78A(2)(a) of the ITAA 1936;

· another fund, authority or institution makes, or becomes liable to make, or may reasonably be expected to make a payment, or transfer property to any person or incur any other detriment, disadvantage, liability or obligation: section 78A(2)(b) of the ITAA 1936;

· the giver or the giver's associate obtains, or will obtain, or may reasonably be expected to obtain any benefit, advantage, right or privilege apart from the benefit of a tax saving associated with the gift deduction: section 78A(2)(c) of the ITAA 1936;

· the recipient or another fund, authority or institution acquires property, directly or indirectly, from the giver or the giver's associate: section 78A(2)(d) of the ITAA 1936.

Section 26-55 of the ITAA states that in general deduction for gifts cannot give rise to a tax loss. However, deductions for certain gifts can be spread in instalments chosen by the taxpayer over a period of up to five years. This applies to gifts to cultural organisations, environmental organisations, heritage organisations, gifts of property valued by the Commissioner at over $5000, grants of conservation covenants and gifts of cash to a deductible gift recipient.

Deduction over five years

Under paragraph 30-248(1)(a) of the ITAA 1997, if you can deduct an amount under Division 30 of the ITAA 1997 for a gift covered by subsection 30-247(1) of the ITAA 1997, you may make a written election to spread that deduction over the current income year and up to four of the immediately following income years.

An election may be made for a gift made on or after 1 July 2003 that is a gift of money, or property valued at more than $5,000, made to a fund, authority or institution covered by item 1 or 2 of the table in section 30-15 of the ITAA 1997.

An election must be in the approved form, be made prior to lodging the income tax return for the year in which the contribution is made and contain the percentage(s) to be claimed in each year. The election must commence in the year in which the contribution was made and continue for a period of up to four of the years immediately following. The percentage for each year does not need to be the same, but the total percentage over the years cannot exceed 100%.

Conclusion

Since your proposed donation meets all the conditions of a gift under Division 30 of the ITAA 1997, you are eligible to claim a deduction in the income year the gift is made to the DGR. In addition as your donation will be in cash to a DGR, the deduction can be spread in instalments over a period of five years.

Application of Part IVA

Part IVA applies to a scheme where having regard to a number of objective factors or matters it would be concluded that one of the scheme participants who entered into or carried the scheme or any part of the scheme did so for the dominant purpose of enabling the relevant taxpayer to obtain a tax benefit in connection with the scheme.

Under s 177D(b) of the ITAA 1936 , the matters are:

· the manner in which the scheme was entered into or carried out;

· the form and substance of the scheme;

· the time at which the scheme was entered into and the length of the period during which the scheme was carried out;

· the result in relation to the operation of the ITAA 1936 that, but for Pt IVA , would be achieved by the scheme;

· any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result, from the scheme;

· any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the relevant taxpayer, being a change that has resulted, will result or may reasonably be expected to result, from the scheme;

· any other consequence for the relevant taxpayer, or for any related person, of the scheme having been entered into or carried out; and

· the nature of any connection (whether of a business, family or other nature) between the relevant taxpayer and any other related person.

Part IVA is directed at blatant, artificial and contrived arrangements, but is not intended to cast unnecessary inhibitions on normal commercial transactions by which taxpayers legitimately take advantage of opportunities available for the arrangement of their affairs under ITAA 1936 and ITAA 1997.

Conclusion

You are the sole shareholder and decision maker of the Company. The Company is negotiating a contract of sale of a parcel of land to Party yy. The profits of the company will be distributed to you. You intend to do a personal donation to a DGR. You have stated to the DGR that it is your vision that they donate some funds back to Party yy but they are not obligated to follow your vision.

At present, the contract between the Company and Party yy for the sale of the property has not been finalised, and no draft copy of the terms and conditions of the sale has been provided. However there is sufficient information to suggest that in the absence of evidence to the contrary, the Commissioner should not apply Part IVA, as there does not appear to be a dominant purpose of obtaining a tax advantage.