Edited version of private advice

Authorisation Number: 1052199513294

Date of advice: 7 December 2023

Ruling

Subject: Deductibility - shares given to deductible gift recipient

Question

Will the Taxpayer be eligible to claim a tax deduction equal to the value determined by the Commissioner for a donation of property to a deductible gift recipient pursuant to section 30-15 of the Income Tax Assessment Act 1997?

Answer

Yes.

This ruling applies for the following period:

Income year ending 30 June 20XX

The scheme commences on:

DD MM 20XX

Relevant facts and circumstances

The Taxpayer is an individual taxpayer that is a resident for Australian tax purposes.

The Taxpayer wholly owns an Australian private company, Company A.

The Taxpayer is the sole Director and Secretary of Company A.

The net assets of Company A consist primarily of cash and are currently valued at approximately $X.

Entity A is an Australia public company limited by guarantee.

Entity A is endorsed as a Deduction Gift Recipient (DGR) with the Australian Taxation Office (ATO) under item 1 of the table in section 30-15 of the of the Income Tax Assessment Act 1997 (ITAA 1997).

Entity A is registered as a Public Benevolent Institution (PBI) for purpose of section 25-5 of the Australian Charities and Not-for-profits Commission Act 2012 (Cth).

As per the Australian Charities and Not-for-profits Commission (ACNC) registration profile, Entity A is registered as a charity.

Entity A has a physical presence in Australia, and to that extent, incurs its expenditure and pursues its objective principally in Australia.

The principal activities of Entity A entail the provision within the scope of its charitable object as per its constitution as described below:

The company is established for the public charitable object of providing ...

The Board of Directors of Entity A comprises X Non-Executive Directors and one of whom is the Taxpayer.

The Taxpayer also has the various responsibilities at Entity A.

Notwithstanding the various roles held by the Taxpayer at Entity A, the Taxpayer does not have any controlling interest over the affairs of Entity A.

The Taxpayer has made various donations spanning decades of time to charitable organisations.

The Taxpayer intends to donate to Entity A, of 100% of her shares in Company A. It is anticipated that the donation will advance the causes and work undertaken by Entity A.

The Taxpayer desires to make the donation in order to help Entity A advance its object and charitable purpose.

The proposed donation is expected to take place on or before DD MM 20XX.

The Taxpayer intends to claim an income tax deduction under section 30-15 of ITAA 1997 in their income tax return for the year ending DD MM 20XX, for the value of the shares in Company A that are proposed to be donated to Entity A.

The Taxpayer understands that the proposed property is required to be valued by the Commissioner by submitting a Request for valuation - Philanthropy program (NAT 75325) under section under section 30-15 of the ITAA 1997.

The Taxpayer will submit the Certificate of donation - Philanthropy program alongside the Request for valuation - Philanthropy program after the completion of the donation transaction and before lodging their income tax return for the year ending DD MM 20XX.

As part of the donation transaction, the Taxpayer and Entity A intend to execute a Deed of Gift, the content of which will address the following:

•         The intention of making the donation is that it will advance the causes and work undertaken by Entity A.

•         The Taxpayer will not in any way personally benefit or receive any advantage as a result of this donation to Entity A.

The abovementioned understandings associated with the donation will be outlined and included as an attachment to the request for valuation - Philanthropy program to be submitted to the Commissioner.

Notwithstanding the offices held by the Taxpayer at Entity A, the Taxpayer and Entity A will be dealing with each other on arm's length terms, in respect of the proposed donation transaction.

The Taxpayer intends to resign from their offices of Director and Secretary of Company A after the donation transaction has completed.

The Taxpayer intends for a representative of Entity A to be appointed to the offices of Director and Secretary of Company A.

The Board of Entity A will determine how and when the proceeds from any distribution from Company A will be deployed after the donation transaction is completed.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 78A

Income Tax Assessment Act 1997 section 26-55

Income Tax Assessment Act 1997 section 30-15

Income Tax Assessment Act 1997 section 30-17

Income Tax Assessment Act 1997 section 30-45

Income Tax Assessment Act 1997 subdivision 30-B

Income Tax Assessment Act 1997 subdivision 30-BA

Income Tax Assessment Act 1997 section 30-212

Income Tax Assessment Act 1997 subsection 995-(1)

Does IVA apply to this private ruling?

Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement.

If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select 'Part IVA: the general anti-avoidance rule for income tax'.

Reasons for decision

Division 30 of the ITAA 1997 sets out the rules for working out deductions for certain gifts or contributions. Relevantly, item 1 of the table in section 30-15 of the ITAA 1997 allows a taxpayer to claim a deduction for, 'a fund, authority or institution covered by an item in any of the tables in Subdivision 30-B of the ITAA 1997'. Item 1 also provides information on how much you can deduct, and the special conditions which must be met.

It must be determined whether the proposed gift of the in-specie shares meets the definition of a gift, and whether it meets the requirements of item 1 of the table in section 30-15 of the ITAA 1997.

Meaning of gift

The meaning of the term 'gift' is not defined in the legislation. Taxation Ruling TR 2005/13 Income tax: tax deductible gifts - what is a gift (TR 2005/13) explains what a gift is, for the purposes of Division 30 of the ITAA1997. Paragraph 13 of TR 2005/13 provides that the courts have described a gift as having the following characteristics and features:

•         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.

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 Deductible Gift Recipient (DGR).

Transfer of beneficial interest in property

Paragraph 18 of TR 2005/13 provides that a gift is effectual only when the giver has done everything necessary to transfer ownership to the DGR. Generally, if a DGR fails to obtain immediate and unconditional right of custody and control of the property, a gift deduction will not arise.

The Taxpayer wholly owns the shares in Company A and intends to donate 100% of the shares in Company A to Entity A. Once this proposed gift of shares is transacted, it will result in Entity A having immediate and unconditional rights to retain custody and control of the shares. This requirement is satisfied.

Transfer is made voluntarily

Paragraph 23 of TR 2005/13 provides that for a transfer of property to be made voluntarily, 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.

The Taxpayer has voluntarily agreed to donate the shares in Company A by their own accord and free will. The donation will be made during the income year ending DD MM 20XX for the purposes of advancing Entity A's object and charitable purpose. The transfer of shares will not be made pursuant to any legal obligations imposed on the Taxpayer - whether in contract or at law. The transfer will also not be in connection with the discharge of any contractual obligation owed by the Taxpayer to Entity A. Accordingly, the transfer of shares by the Taxpayer to Entity A will be made voluntarily.

Transfer arises by way of benefaction

Paragraph 27 of TR 2005/13 provides that conferring benefaction means that the DGR is advantaged in a material sense, without a countervailing detriment arising from the terms of the transfer.

There is no evidence that any detriment will arise and no agreement in connection with the transfer of the shares that gives rise to any obligation on Entity A. Entity A will have full and unfettered discretion as to the use of the shares for its own charitable purposes. Entity A will not have any obligation to comply or consider the Taxpayer's wishes or preferences. The Taxpayer being able to claim income tax deduction under section 30-15 of the ITAA 1997 following the donation, does not disqualify the transfer from being a gift. Accordingly, this requirement is met.

No material benefit or advantage is received by the giver in return

Paragraph 37 of TR 2005/13 provides that there will not be a gift if the giver receives a benefit or advantage from the DGR or another party in return.

There is no evidence that the Taxpayer (the giver) will receive any material benefit or advantage in return for their proposed gift of the shares to Entity A. The Taxpayer and Entity A intend to execute a Deed of Gift in which will include a clause that the Taxpayer will not in any way personally benefit or receive any advantage as a result of the donation to Entity A. This requirement is met.

Therefore, it is accepted that the proposed gift of the shares displays the required characteristics of a gift in accordance with TR 2005/13.

Is your gift to Entity A deductible?

Division 30 of the ITAA 1997 sets out the rules governing deductibility of gifts or contributions.

Subsection 30-15(1) of the ITAA 1997 provides that a gift or contribution to a fund or institution is deductible in the income year for which it is made subject to satisfying the relevant requirements set out in the table in subsection 30-15(2) of the ITAA 1997. Item 1 of that table states that deductible gifts and contributions can be made to recipients who are covered by any of the tables in Subdivision 30-B of the ITAA 1997.

Gift Recipient

Subdivision 30-B of the ITAA 1997 includes section 30-45 of the ITAA 1997. Item 4.1.1 of the table in subsection 30-45(1) of the ITAA 1997 includes recipients who are 'a registered public benevolent institution' (registered PBI). Deductible gifts and contributions can therefore be made to a recipient that is a registered PBI.

A registered PBI is defined in subsection 995-1(1) of the ITAA 1997:

registered public benevolent institution means an institution that is:

(a) a registered charity; and

(b) registered under the Australian Charities and Not-for-profits Commission Act 2012 as the subtype of entity mentioned in column 2 of item 14 of the table in subsection 25-5(5) of that Act.

Entity A is registered charity. Entity A is also a Public Benevolent Institution (PBI) for purposes of column 2 of item 14 of the table in subsection 25-5(5) of the Australian Charities and Not-for-profits Commission Act 2012 (Cth). As such Entity A meets the definition of a PBI in subsection 995-1(1) of the ITAA 1997.

Type of gift

Item 1 of the table in subsection 30-15(2) of the ITAA 1997 provides that the deductible gifts and contributions that can be made to an item 1 recipient include gifts of property valued by the Commissioner at more than $5,000.

Amount of gift that can be deducted

Item 1 of the table in subsection 30-15(2) of the ITAA 1997 states that if the gift of property is valued by the Commissioner at more than $5,000 and the property was not purchased during the 12 months before making the gift, the amount that can be deducted for a gift of property will be the valued of the property as determined by the Commissioner.

In addition, you must meet the following special conditions set out under item 1 of the table in subsection 30-15(2) of the ITAA 1997:

(a) the fund, authority or institution must be in Australia; and

(aa) the fund, authority or institution must either meet the requirements of section 30-17 or be mentioned by name in the relevant table item in Subdivision 30-B; and

(b) the value of the gift must be $2 or more; and

(c) any conditions set out in the relevant table item in Subdivision 30-B must be satisfied; and

(d) if the property is to be valued by the Commissioner - the requirements of section 30-212 are satisfied.

Section 30-212 of ITAA 1997 provides the requirement for a valuation for the gift that is covered by a provision of Division 30 of ITAA 1997 that refers to the value of property as determined by the Commissioner.

Application to your circumstances

The Taxpayer intends to make the donation of property being shares to Entity A during the income year ending DD MM 20XX. Entity A is endorsed as a DGR and is a registered PBI under item 4.1.1 of the table in section 30-45(1) of ITAA 1997. Therefore, Entity A meets the description of a recipient under item 1 of the table in subsection 30-15(2) and section 30-17 of the ITAA 1997.

The shares that will be donated to Entity A are considered as a gift of property valued by the Commissioner at more than $5,000 and are tax deductible gifts under Division 30 of the ITAA 1997. Further, the Taxpayer will have held the 100% of the shares in Company A for more than 12 months at the date of donation. Accordingly, the amount of gift that can be deducted is the value of the shares as determined by the Commissioner. Under section 30-212 of the ITAA 1997, valuation by the Commissioner will be required for the shares to be donated, which can be obtained by submitting a Request for valuation - Philanthropy program (NAT 75325).

In addition, we consider the Taxpayer will meet the special conditions set out under item 1 of the table in subsection 30-15(2) of the ITAA 1997:

(a) Entity A is a fund based in Australia;

(b) Entity A meets the requirements of section 30-17 of the ITAA 1997 and is a registered PBI covered in item 4.1.1 of the table in subsection 30-45(1) of the ITAA 1997 under Subdivision 30-B of the ITAA 1997;

(c) The value of the proposed gift is $2 or more;

(d) No special conditions are set out for item 4.1.1 in Subdivision 30-B; and

(e) The Taxpayer will submit a Request for valuation - Philanthropy program (NAT 75325) to meet the valuation requirement under section 30-212 of the ITAA 1997

Conclusion

Entity A is endorsed as a DGR and is a registered PBI for the purposes of item 4.1.1 of section 30-45 under Subdivision 30-B of the ITAA 1997. The shares to be donated meet the requirements for the type of gift or contribution under item 1 of the table in section 30-15(2) of ITAA 1997. The Taxpayer will satisfy the valuation requirements under section 30-212 of the ITAA 1997 once the Request for valuation - Philanthropy program (NAT 75325) is submitted. Other special conditions and other elements in item 1 of the table in section 30-15 of the ITAA 1997 will also be satisfied. Accordingly, the Taxpayer will be eligible to claim a tax deduction equal to the value determined by the Commissioner for the proposed donation of shares in Company A to Entity A pursuant to section 30-15 of the ITAA 1997.