Edited version of private ruling

Authorisation Number: 1011768362795

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Ruling

Subject: donations to a building fund

Question

Are you entitled to a deduction for the value of land donated to the building fund when there are conditions attached to the transfer?

Answer

No.

This ruling applies for the following period

Year ending 30 June 2011

Year ending 30 June 2012

The scheme commenced on

1 July 2010

Relevant facts and circumstances

You intend to make a donation of a number of parcels of land to a building fund (the fund) with the land to be used for educational purposes.

The fund is a Deductible Gift Recipient (DGR) under item 2.1.10 of subsection 30-25(1) of the Income Tax Assessment Act 1997 (ITAA 1997).

You and the body that administers the fund have had some discussions about the development of a site master plan for the use of the land.

It will be the sole responsibility of the body to develop and implement the plan.

Erected on one of the parcels of land is a house presently occupied by yourself.

In relation to the transfer of that parcel of land to the fund you wish to reserve specific rights.

Upon your death the entire interest in that parcel of land will transfer to the fund.

To ensure that the land donated is used for educational purposes the land would be transferred to the fund subject to the following conditions:

A condition that the properties are to be used by the fund for purposes as referred to above;

· A condition that the properties are not to be sold but are to be retained by the body during the period of its existence; and

· A condition that requires the body to develop and implement its site master plan within 10 years or other reasonable period of time.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 30-15

Income Tax Assessment Act 1997 Section 30-25

Income Tax Assessment Act 1936 Section 78A

Income Tax Assessment Act 1936 Subsection 78A(3)

Reasons for decision

Summary

As the fund will not receive unconditional right of custody and control of the land you are not entitled to a deduction under section 30-15 of the ITAA 1997.

Detailed Reasoning

To be deductible under Division 30 of the ITAA 1997, the transfer of the property must be a gift as set out in section 30-15 of the ITAA 1997. 

Also, even if the transfer would otherwise be deductible under section 30-15 of the ITAA 1997, section 78A of Income Tax Assessment Act 1936 (ITAA 1936) must not preclude a deduction.

Gift

Section 30-15 of the ITAA 1997 provides that a gift to any funds and institutions listed is allowable as a deduction in the income year in which the gift is made, provided the gift meets the various conditions of relevant subsections.

To be able to claim a tax deduction for a gift, it must:

· Be made to a deductible gift recipient (DGR)

· Be a gift of money or property that is covered by a gift type, and

· Be truly a gift.

DGR

Only gifts made to a DGR are tax deductible. Division 30 of the ITAA 1997 provides that a taxpayer will be able to claim a deduction for a gift or contribution made during the year to nominated funds (including prescribed private funds), authorities, institutions or specified persons.

A deduction is not available unless the recipient is endorsed by the Commissioner or is specially listed by name in the ITAA 1997 as an eligible gift recipient. An endorsed gift recipient is a fund, authority or institution that satisfies the requirements of Division 30 of the ITAA 1997.

We accept that the fund is a DGR as it received endorsement under Subdivision 30-BA of the ITAA 1997.

A gift of money or property that is covered by a gift type.

Paragraph 6 of Taxation Ruling TR 2005/13 states that Division 30 of the ITAA 1997 provides that the types of non-testamentary gifts (to the value of $2 or more) to a DGR that can be deductible include:

· money; or

· property (including trading stock) that you purchased during the last twelve months before making the gift; or

· 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 of the ITAA 1997 (about electing to spread or defer profit from the forced disposal or death of *live stock); or

· property valued by the Commissioner at more than $5,000.

We accept that there would be a transfer of property valued at more than $5,000. Nevertheless, it would be necessary to apply for and receive such a valuation from the Commissioner, that the transferred property is valued at more than $5,000 before this requirement is satisfied.

A true gift

As discussed in TR 2005/13, the term gift is not defined in the ITAA 1997 and for the purposes of Division 30, the word gift has its ordinary meaning.

TR 2005/13 states that rather than attempting a definition of a gift the courts have described a gift as having the following characteristics and features:

(a) there is a transfer of money or property

(b) the transfer is made voluntarily

(c) the transfer arises by way of benefaction, and

(d) no material benefit or advantage is received by the giver by way of return.

Transfer of property

Paragraphs 61 and 62 of TR 2005/13 states that the making of a gift to a DGR involves the transfer of money or property to that DGR: section 30-15 of the ITAA 1997. In the simplest cases, this involves the delivery of money (cash, cheque or electronic transfer of funds) or goods to the DGR.

Paragraph 19 of TR 2005/13 states that if the DGR fails to obtain immediate and unconditional right of custody and control of the property transferred, or less than full title to the transferred property is transferred, a gift deduction will not arise. This will be by reason of the meaning of gift, and/or by reason of the operation of section 78A of the ITAA 1936.

In your case, you intend to transfer several parcels of land to the fund with the conditions that the land is to be retained by the body during the period of its existence and is used to implement a site master plan.

As you have imposed restrictions on the sale of land and its use a gift deduction will not arise. The fund does not obtain unconditional right of custody and control of the land.