Edited version of private advice

Authorisation Number: 1051766900222

Date of advice: 15 October 2020

Ruling

Subject: Capital gains tax asset - personal use

Question

Issue 1

Question 1

Will the proceeds from the disposal of your B be assessable pursuant to section 6-5 or section 15-15 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

Question 2

Will the proceeds from the disposal of B be assessed under the capital gains tax provisions of the ITAA 1997?

Answer

Yes

Question 3

Will the capital gain made upon the disposal of B be disregarded under subsection 118-10 (3) of the ITAA 1997?

Answer

Yes

Issue 2

Question 1

Will you be entitled to a deduction under Division 30 of the ITAA 1997 for the payment of the proceeds from the disposal of B to the DGR?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You acquired B after 20 September 1985.

The value of B as a memorabilia item has increased since acquisition.

You had no intention to sell B and held it for its sentimental value.

You made the decision to dispose of B and donate the proceeds to charity.

The Charity is a deductible gift recipient (DGR).

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 15-15

Income Tax Assessment Act 1997 subsection 15-15(2)

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 108-5

Income Tax Assessment Act 1997 section 108-20

Income Tax Assessment Act 1997 subsection 118-10(3)

Income Tax Assessment Act 1997 Division 30

Income Tax Assessment Act 1997 section 30-15

Income Tax Assessment Act 1997 section 30-17

Reasons for decision

Issue 1

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that assessable income includes income according to ordinary concepts. Typical examples of ordinary income include salary and wages, proceeds from carrying on a business, rent, interest and dividends. Profits from the sale of a capital asset are generally not income, although they may be assessable as statutory income under the capital gains provisions.

Section 15-15 ITAA 1997 provides that your assessable income also includes profit arising from the carrying on, or carrying out, of a profit-making undertaking or plan. Subsection 15-15(2) of the ITAA 1997 goes on to say that this section does not apply to a profit that is assessable as ordinary income under section 6-5 or arises in respect of the sale of property acquired on or after 20 September 1985.

Taxation Ruling TR 92/3 Income tax: whether profits on isolated transactions are income (TR 92/3) deals with determining whether profits on isolated transactions are income. According to TR 92/3, a profit from an isolated transaction is generally income if the intention or purpose of the taxpayer in entering into the transaction was to make a profit or gain; and the transaction was entered into, and the profit was made, in the course of carrying on a business or in carrying out a business operation or commercial transaction.

Section 102-20 of the ITAA 1997 provides that you can make a capital gain or loss if and only if a CGT event occurs. The most common CGT event, CGT event A1, occurs when you dispose of a CGT asset to someone else, for example, if you sell a property.

A CGT asset is defined in section 108-5 of the ITAA 1997 as any kind of property, or a legal or equitable right that is not property.

A personal use asset is defined in section 108-20 of the ITAA 1997 and includes a capital gains tax (CGT) asset (excluding a collectable) that is used or kept mainly for your personal use and enjoyment.

Examples of personal use assets include clothing, cameras, televisions and furniture.

A capital gain you make from a personal use asset, or part of the asset, is disregarded if the first element of the asset's cost base is $10,000 or less (subsection 118-10(3) of the ITAA 1997).

In your case, the proceeds from the disposal of B are not considered income according to ordinary concepts and will not be assessable under section 6-5 of the ITAA 1997. It is also considered that the proceeds from the disposal of B will not be assessable under section 15-15 of the ITAA 1997 as it is not considered profit arising from the carrying on, or carrying out, of a profit-making undertaking or plan and the proceeds are in respect of the sale of property acquired on or after 20 September 1985.

B is considered a CGT asset and also considered to be a CGT personal use asset as it was used and kept mainly for personal use and enjoyment. It is considered the value of B would have been nominal at acquisition, its' value increasing as you continued to hold it. Applying the market value substitution rule, it is considered B, at the time you acquired it, would have had a value of less than $10,000, therefore meeting the conditions under subsection 118-10(3) of the ITAA 1997 to disregard any capital gain made from its disposal.

As such, the disposal of B will trigger CGT event A1 upon disposal, however any capital gain made from the disposal of B will be disregarded as it is considered a CGT personal use asset.

Issue 2

Division 30 of the ITAA 1997 deals with the deductibility of gifts or contributions.

Section 30-15 of the ITAA 1997 provides a table to explain the special conditions which must be satisfied before a gift is allowable as a deduction. The table tells you:

·         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

·         any special conditions that apply.

The gift recipient must be a fund, authority or institution covered by an item in any of the tables in subdivision 30-B of the ITAA 1997 and must meet the requirements of section 30-17 of the ITAA 1997.

Section 30-17 of the ITAA 1997 provides that the fund, authority or institution must be an entity that is endorsed under subdivision 30-BA of the ITAA 1997. The subdivision sets out the rules about endorsement of entities as deductible gift recipients.

In this case, the Charity is endorsed as a DGR and therefore covered by item 1 of the table in section 30-15 of the ITAA 1997. Item 1 of the table in section 30-15 provides that a gift of money must be $2 or more to satisfy Division 30 as being tax deductible.

Taxation Ruling TR 2005/13 states that, as the term " gift " is not defined, it has its ordinary meaning, and that the courts have described a gift as having the following characteristics:

·         there is a transfer of the beneficial interest in property

·         the transfer is made voluntarily

·         the transfer arises by way of benefaction, and

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

Paragraphs 37 to 44 of TR 2005/13 deal further with the issue of 'no material benefit or advantage' and paragraph 41 states that only advantages or benefits that are material will disqualify a transfer of property from being regarded as a gift.

The following examples cited in paragraph 43 of TR 2005/13 are not a material benefit or advantage:

·         one that has no link with the transfer;

·         one that is insignificant in relation to the value of the transfer;

·         one that only constitutes advertising for the DGR;

·         one that cannot be put to use and is not marketable;

·         one that does not create any rights, or confer any privileges or entitlements;

·         one that merely accounts for the use of the funds;

·         one that is mere public recognition of the giver's generosity; or

·         one that confers membership of a DGR which was neither sought nor known by the giver at the time of making the transfer.

In this case, the gift is in the form of money (proceeds from the disposal of B) and is over $2. There was a transfer of beneficial interest in property as the gift in the form of money. The money was given voluntarily and the transfer of the money to the DGR is by way of benefaction. It is also considered that there was no material benefit or advantage received by you as a result of making this gift. As such, you are entitled to a deduction for the proceeds from the disposal of B that you donated to the DGR.