Edited version of your written advice

Authorisation Number: 1051501576019

Date of advice: 4 April 2019

Ruling

Subject: Deductions

Question

Are you entitled to a deduction under section 30-15 of the Income Tax Assessment Act 1997 (ITAA 1997) where you buy the remaining trading stock of X, then give the stock to a deductible gift recipient?

Answer

No

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

XX 20XX

Relevant facts and circumstances

You jointly own the company. As shareholders you each hold 50% shares.

Your company plans to be voluntarily wound up before the end of the financial year.

Before winding up, the company is planning to sell all its remaining trading stocks at current retail market price to its two shareholders.

Sales proceeds from the transaction will be included as revenue to calculate company profit / loss and will form part of the company tax return.

Once shareholders have purchased the stocks from the company, they plan to donate these stocks to a deductible gift recipient, under their individual names.

Both shareholders plan to claim deduction for the donation in their personal income tax return.

Your stated purpose of these actions are for the following reasons: If the company donates the stocks under its name, the deduction will not have any tax impact as you are not expecting any tax payable for the company at this point of time. Whereas if the goods are sold to the shareholders then company will be able to generate some revenue which will then form part of the company profit / loss calculation for tax purpose, in addition the shareholder will be able to donate the stocks under their name and will be able to claim some deduction for the donation in their personal income tax. This will give the shareholders an opportunity to minimise their loss as shareholder of the company.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 30-15

Reasons for decision

You can deduct a gift or contribution that you make in the situations set out in the table in section 30-15 of Income Tax Assessment Act 1997 (ITAA 1997).

Relevantly, where a gift or contribution of trading stock is made to a Deductible Gift Recipient (DGR), a deduction is available where 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 (about electing to spread or defer profit from the forced disposal or death of livestock).

Whilst the term ‘gift’ is not defined in the ITAA 1997, Taxation Ruling TR 2005/13 provides guidance on the characteristics and features of a gift:

● there is a transfer of the beneficial interest in property

● the transfer is made voluntarily

● the transfer arises by way of benefaction

● no material benefit or advantage is received by the giver by way of return.

Paragraph 15 of TR 2005/13 further states:

“In determining whether a transfer is a gift it is necessary to consider the whole set of circumstances surrounding the transfer and this may include consideration of parties other than the giver and the DGR. It is the substance and reality of the transfer that has to be ascertained. It is therefore necessary to take account of those acts, transactions, arrangements and circumstances that provide the context and the explanation for the transfer”.

Under your circumstances, given the deliberate additional steps taken beyond simply gifting the trading stock done with a stated view to maximising the broader financial benefit to you and your associated parties, the gift cannot be considered to have been made by way of disinterested benefaction and does not meet the requirements of a gift deduction. Accordingly a deduction is not available under section 30-15 of ITAA 1997.