Edited version of your written advice

Authorisation Number: 1051508474381

Date of advice: 18 April 2019

Ruling

Subject: Gift

Question

In relation to the proposed provision of a personal property to the taxpayer, does it constitute gift under Subdivision 30-A of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following periods:

Income year ending 30 June 20XX to 30 June 20XX

The scheme commences on:

01 July 20XX

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The taxpayer is an endorsed Deductible Gift Recipient (DGR).

The taxpayer is approached by a third party, who proposes to provide its personal property to the taxpayer for free use during certain period(s) of time on temporary basis.

The taxpayer considers the personal property appropriate for its purpose.

Relevant legislative provisions

Income Tax Assessment Act 1997

Income Tax Assessment Act 1936

Reasons for decision

Under section 30-228, a deductible gift recipient (DGR) must ensure that certain details must appear on a receipt it issues for a gift that is made to the entity or a fund, authority or institution the DGR operates and the gift is of a kind that the giver can deduct under Subdivision 30-A.

Taxation Ruling TR 2005/13 Income tax: tax deductible gifts – what is a gift provides explanations on what is a gift for the purposes of the gift deduction provisions in Division 30 and principles relevant to the factual determination of whether a particular transfer of money or property constitutes a gift.

TR 2005/13 also explains the operation of anti-avoidance measures for gift, section 78A of the Income Tax Assessment Act 1936 (ITAA 1936).

For the purposes of Division 30 the word ‘gift’ has its ordinary meaning: paragraph 12 of the TR 2005/13.

Paragraph 13 of the TR 2005/13 lists down the following characteristics and features that the courts have described a gift should have:

● there is a transfer of the beneficial interest in property (paragraphs 16 to 22);

● the transfer is made voluntarily (paragraphs 23 to 26);

● the transfer arises by way of benefaction (paragraphs 27 to 36); and

● no material benefit or advantage is received by the giver by way of return (paragraphs 37 to 44).

Paragraphs 16 and 17 of the TR 2005/13 require the making of a gift to a DGR to involve the transfer of a beneficial interest in property to that DGR, that is, the identifiable property has in fact been transferred to the DGR.

For there to be a transfer, paragraph 18 of the TR 2005/13 makes it clear that, the property which belonged to the giver must become the property of the DGR. A gift is effectual only where the giver has done everything that is necessary, in accordance with the relevant laws governing the transfer of that kind of property, to transfer ownership to the DGR.

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: paragraph 19 of the TR 2005/13.

Should the taxpayer decide to accept the approach by the third party to use the third party’s personal property for free, the personal property is not to be transferred to the taxpayer or will not become the property of the taxpayer; there is no effectual gift, on the basis that the third party will not do everything that is necessary to transfer ownership of the personal property to the taxpayer under the relevant laws.

Paragraph 21 of the TR 2005/13 states that, the provision of services to a DGR by a volunteer does not constitute a gift, as the ordinary meaning of property does not include services. Any expenditure incurred by the volunteer in the course of providing the unpaid services does not constitute a gift. Nor is it deductible under section 8-1 as a loss or outgoing incurred in gaining or producing assessable income.

On the facts, the proposed provision of the personal property by the third party to the taxpayer, in its nature, constitutes provision of services, it is not a gift. Accordingly, any associated expenses incurred by the third party in the course of providing the property does not constitute a gift, nor would they be deductible under section 8-1.

In addition, paragraph 225 of the TR 2005/13 refers to subsection 78A(3) of the ITAA 1936, which has the effect of deeming a benefit to be received by the giver or the giver’s associate in relation to a gift of property other than money where the terms and conditions attaching to the gift result in the DGR not receiving:

● immediate custody and control of the property;

● unconditional right to retain custody and control of the property in perpetuity to the exclusion of the giver or an associate of the giver; or

● immediate, indefeasible and unencumbered legal and equitable title to the property.

In receiving the personal property for free use on a temporary basis, the taxpayer will not obtain any unconditional right to retain custody and control of the personal property in perpetuity to the exclusion of the third party or any immediate, indefeasible and unencumbered legal and equitable title to the personal property as required in subsection 78A(3); this is in addition to what has been considered previously in this document that there is no gift of property, rather it is a provision of free services.

Therefore, in relation to the proposed provision of the private property to the taxpayer for free use, it constitutes provision of free services, not a gift. Anti-avoidance provisions in subsection 78A(3) of the ITAA 1936 may apply to disallow any relevant income tax deduction.