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Edited version of your written advice
Authorisation Number: 1051185612007
Date of advice: 31 January 2017
Ruling
Subject: Gifting of shares to a deductible gift recipient
Question 1
Are you entitled to a deduction under section 30-15, item 2 paragraph (d) of the Income Tax Assessment Act 1997 (ITAA 1997) for a donation of shares to a deductible gift recipient (DGR)?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2017
The scheme commences on:
1 July 2016.
Relevant facts and circumstances
You are the sole shareholder of XYZ Pty Ltd.
XYZ Pty Ltd holds shares in publicly listed companies.
You are considering gifting the shares held in XYZ Pty Ltd to a private ancillary fund.
The Trustee for this fund is an endorsed DGR.
The shares have been valued by you at the substituted market value and are estimated to be $X,XXX,XXX.
The shares have not been valued by the Australian Taxation Office.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 30-15(1),
Income Tax Assessment Act 1997 Subsection 30-15(2),
Income Tax Assessment Act 1997 Section 30-212,
Income Tax Assessment Act 1997 Section 30-212,
Income Tax Assessment Act 1997 Subsection 30-247(1) and
Income Tax Assessment Act 1997 Section 30-248.
Question 1
Section 30-15 of the ITAA 1997 provides that a taxpayer is entitled to a deduction for a gift or contribution that they make in certain situations. The accompanying table to this section sets out the conditions that must be satisfied before a taxpayer is entitled to a deduction for a gift. It stipulates:
● who the recipient of the gift or contribution can be; and
● the type of gift or contribution that you can make; and
● how much you can deduct for the gift or contribution; and
● special conditions that apply.
Generally, a taxpayer will be entitled to a deduction for a gift or contribution that they make to an endorsed gift recipient, where it is a monetary gift or contribution of $2 or more. The gift may be in the form of money or property.
The type of recipient under item 2 is a public fund or a private ancillary fund established and maintained under a will or instrument of trust solely for:
(a) the purpose of providing money, property or benefits:
● to a fund, authority or institution gifts to which are deductible under item 1 of this table; and
● for any purposes set out in the item of the table in Subdivision 30-B that covers the fund, authority or institution; or
(b) the establishment of such a fund, authority or institution.
The type of gift or contribution allowed under paragraph (d) in item 2 of the table in section 30-15 of the ITAA 1997 is property valued by the Commissioner at more than $5,000.
The amount you can deduct 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 is the value of the property as determined by the Commissioner.
There are some special conditions attached as follows:
● the terms of the will or trust must allow the trustee to invest money that the fund receives, because of the gift, only in a way that an Australian law allows trustees to invest trust money; and
● the fund must meet the requirements of section 30-17 of the ITAA 1997; and
● if the property is to be valued by the Commissioner - the requirements of section 30-212 of the ITAA 1997 are satisfied.
Section 30-17 of the ITAA 1997 requires a fund to be either:
● legally owned by an entity that is endorsed under Subdivision 30-BA of the ITAA 1997 as a DGR for the operation of the fund; or
● under the control of one or more persons who constitute a government entity that is endorsed under Subdivision 30-BA of the ITAA 1997 as a DGR for the operation of the fund.
Section 30-212 of the ITAA 1997 states if you make a gift or contribution that is covered by a provision of this Division (Division 30) that refers to the value of property as determined by the Commissioner, you must seek the valuation from the Commissioner.
The recipient is an endorsed DGR for the operation of a fund (private ancillary fund).
As the gift you intend to give for no consideration has not been valued by the Commissioner, you will need to obtain a valuation from the Australian Taxation Office before claiming the deduction.
From the information you have provided, it is likely that the gift will be valued at more than $5,000. If this is the case, then all the conditions for deductibility have been met and you will be entitled to a deduction for the value of the gift as valued by the Commissioner.
Subdivision 30-DB of the ITAA 1997 allows you to elect to spread deductions for certain gifts and covenants over up to 5 income years.
Subsection 30-247(1) of the ITAA 1997 in part states an election under this Subdivision may be made for a gift, made on or after 1 July 2003, that is a gift of money or property valued by the Commissioner at more than $5,000 made to a fund, authority or institution covered by item 1or 2 of the table in section 30-15 of the ITAA 1997. There are further rules about deductibility of the gift under section 30-248 of the ITAA 1997.
If your gift was given to a fund covered by item 2 in the table in section 30-15 of the ITAA 1997 and it was made after 1 July 2003 you are entitled to spread the deduction over up to 5 years provided all the other conditions under section 30-248 of the ITAA 1997 are met.