Edited version of your written advice

Authorisation Number: 1051353684364

Date of advice: 26 March 2018

Ruling

Subject: Deductibility of gifts

Question 1

Can the Trust claim an income tax deduction for the gift of property to the Fund under section 30-15 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes, the Trust can claim an income tax deduction for the gift of property to the Fund under section 30-15 of the ITAA 1997, subject to the special conditions set out in column 4 of the table in section 30-15(2) being satisfied.

This ruling applies for the following period:

1 January 20XX to 31 December 20XX

The scheme commences on:

1 January 20XX

Relevant facts and circumstances

1. The Fund was set up to receive gifts and donations from the community.

2. The Fund is endorsed as a Deductible Gift Recipient (DGR) under Subdivision 30-BA of the Income Tax Assessment Act 1997 (ITAA 1997).

3. The Trust was established by various members of the community. Funding was obtained and land was purchased. The Trust now wishes to make a gift of part of the property to the Fund.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 30-15

Income Tax Assessment Act 1997 Subsection 30-15(1)

Income Tax Assessment Act 1997 Subsection 30-15(2)

Income Tax Assessment Act 1997 Subsection 30-212

Income Tax Assessment Act 1997 Subdivision 30-BA

Income Tax Assessment Act 1936 Section 78A

Reasons for decision

Summary

Yes, the Trust can claim an income tax deduction for the gift of property to the Fund under section 30-15 of the ITAA 1997, subject to the special conditions set out in column 4 of the table in section 30-15(2) being satisfied.

Detailed reasoning

1. Division 30 of the ITAA 1997 provides that the types of non-testamentary gifts (to the value of $2 or

2. 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:

a. money;

b. property (including trading stock) purchased during the 12 months before the gift was made;

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

d. an item of trading stock disposed of outside the ordinary course of business;

e. property under the Cultural Gifts Program; or

f. gifts of places listed in the register of the National Estate.

3. The term 'gift' is not defined in the ITAA 1997 but the courts have described a gift as having the following characteristics and features:

a. there is a transfer of the beneficial interest in 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 donor by way of return.

4. The issue of what is a gift for the purposes of Division 30 of the ITAA 1997 is dealt with in Taxation Ruling TR 2005/13 Income tax: tax deductible gifts - what is a gift. In determining whether a transfer of property is a gift it is necessary to consider each of the factors outlined in this Ruling in the context of the circumstances surrounding that transfer (paragraph 15 of TR 2005/13).

Transfer of beneficial interest in property

5. The making of a gift to a DGR involves the transfer of a beneficial interest in money or property to the DGR. It is a requirement that identifiable property has in fact been transferred to the DGR.

6. TR 2005/13 provides at paragraph 61:

In the simplest cases this involves the delivery of money (cash, cheque or electronic transfer of funds) or goods to the DGR.

7. The donating Trust is transferring property to the Fund. Therefore there will be a transfer of the beneficial interest in the property.

Transfer made voluntarily

8. TR 2005/13 provides at paragraph 23;

In order for a transfer of property to be a gift, it must be made voluntarily, that is, it must be the act and will of the giver, and there must be nothing to interfere with or control the exercise of that will. However, a transfer made under a sense of moral obligation is still made voluntarily

9. There is no obligation on the donating Trust to make a gift or donation to the Fund. While there may be a sense of moral obligation on the part of the donating Trust the donation is still a voluntary gift.

Arises by way of benefaction

10. Paragraph 27 of TR 2005/13 provides:

An essential attribute of a gift is that benefaction is intended, and in fact conferred on the recipient. Conferring benefaction means that the DGR is advantaged in a material sense, to the extent of the property transferred to them, without any countervailing detriment arising from the terms of the transfer.

11. The intention to confer benefaction need not be the sole reason for making the gift. For example, the fact that the donor is also motivated by the desire to obtain a tax deduction will not, by itself, deprive a payment of its character as a gift, FCof T v. Coppleson 81 ATC 4550; (1981) 12 ATR 358.

12. It is accepted that the Fund will be advantaged in a material sense by the gift of property and there is, in the circumstances covered by this arrangement, no countervailing detriment.

No material benefit or advantage

13. In order to constitute a gift, the donor must not receive a benefit or an advantage of a material nature by way of return. It does not matter whether the material benefit or advantage comes from the DGR or another party (paragraph 37 of TR 2005/13).

14. Paragraph 186 of TR 2005/13 provides;

The public recognition accorded to givers will commonly not be a material benefit. This includes mere acknowledgement in newsletters, annual reports, on a donor's board and so on. As Bowen CJ said in Leary, 'a man may, by his gifts, gain fame or formal honours without losing his tax deductions'.

15. Further at paragraph 192 of TR 2005/13:

On the other hand, recognition accorded to the giver for purposes of commercial advertising is a material benefit. Sponsorships of DGRs by commercial entities generally fall into this category. Such outgoings, however, may be income tax deductible as business expenses.

16. It is considered that the donation of the property by the Trust would not give rise to a material benefit. The public recognition they receive is in the nature of 'mere acknowledgement' as contemplated in paragraph 186 in TR 2005/13.

17. Therefore the donations made would qualify for deduction under Division 30 of the ITAA 1997.

Section 78A

18. In some circumstances section 78A of the Income Tax Assessment Act 1936 (ITAA 1936) will apply to deny a deduction under Division 30 of the ITAA 1997. Section 78A of the ITAA 1936 is not intended to apply to genuine gifts made in ordinary circumstances; rather it is intended to render ineffective arrangements designed to exploit the availability of deductions in respect of gifts.

19. It is considered the provisions of Section 78A of the ITAA 1936 will not apply to your circumstances as detailed in this Ruling.

Application your circumstances

20. Section 30-15 provides that a gift is deductible if the requirements set out under one of the items in the table are met.

21. The Fund is endorsed as a DGR under Subdivision 30-BA of the ITAA 1997. Item 2.1.10 of the table in section 30-25(1) of the ITAA 1997 applies to the Fund and the conditions in relation to the Fund as set out in item 2.1.10 are satisfied. It is therefore considered that the Fund may accept a gift of property (specifically land) from the Trust.

22. It is considered that the Trust can claim a deduction under Subdivisions 30-A and 30-C of the ITAA 1997 on the basis that the conditions in the table in section 30-15(2) of the ITAA 1997 are satisfied as follows:

i. The recipient of the gift is covered by an item in the table in Subdivision 30-B, specifically item 2.1.10;

ii. The gift, being a gift of property, is a type of gift listed in column 2 of the table in section 30-15(2), specifically item (d);

iii. The amount of the deduction will be the value of the property determined by the Commissioner; and

iv. The special conditions set out in column 4 of the table in section 30-15(2) are satisfied, or in the case of (d); will be satisfied once the property has been valued by the Commissioner in accordance with section 30-212 of the ITAA 1997.