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Edited version of private advice
Authorisation Number: 1012641614242
Ruling
Subject: Gifts/donations
Question 1
Are you entitled to a deduction for a donation of artwork, where you have valued the artwork yourself?
Answer:
No.
Question 2
Are you entitled to a deduction for a donation of artwork, at market value?
Answer:
Yes.
Question 3
Will you be required to include the market value of the donated artwork in your assessable income?
Answer:
Yes.
This ruling applies for the following period:
Year ended 30 June 2013
The scheme commences on:
1 July 2012
Relevant facts and circumstances
You are professional artist.
You report business income from your artistry business. You pass the business versus hobby tests.
You are also an employee.
You donated a works of art to a registered Deductible Gift Recipient (DGR).
The artwork was part of your trading stock.
You did not receive any other benefit for the donation. You did not receive a reduction in specific fees.
You valued the works of art yourself at over $X. This is based on what you would have otherwise sold the artwork for if it had of been sold to the general public.
The works of art have been permanently fixed to the building and there is no intention of them being removed.
Reasons for decision
Section 30-15 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that non-testamentary gifts made to a DGR that can be deductible include:
• money,
• property (including trading stock), purchased during the 12 months before the gift was made,
• any items of trading stock disposed of outside the ordinary course of business, or
• property valued by the Commissioner at more than $5,000.
As the artwork you donated was part of your trading stock and the donation was made to a DGR, you will be entitled to a deduction for this donation.
Item of trading stock
Where a person donating artwork is an artist by trade, the artwork may be a part of their trading stock. The available tax deduction to an artist who has donated a piece of their trading stock is the market value of the property on the day on which they make the gift to the DGR.
Importantly however, it should be noted that pursuant to section 70-90 of the ITAA 1997, the market value of trading stock disposed of outside the ordinary course of a business, including where trading stock is donated, is included in the assessable income of the person or entity to whom the trading stock belonged before disposal.
Market valuation
It is important to note that to claim a donation of trading stock as a deduction, an independent market valuation will need to be done. It is not sufficient to value this yourself, as to what you would have expected to otherwise sell the artwork for to the general public.
According to legal precedent, experts who assess market value should have specific knowledge, experience and judgment in that particular field. While professional qualifications may add weight to the valuer's opinion, he or she should also display personal integrity and competence. To ensure the objectivity of the report, the valuer should be independent of the interests of the party commissioning the report.
The valuation process should be adequately documented. Otherwise, the resulting market value may not be accepted by the Tax Office.