Edited version of private advice

Authorisation Number: 1052210854994

Date of advice: 6 February 2024

Ruling

Subject: CGT - gifts exemption

Question

Can the tax-exempt charity that is not endorsed as a deductible gift recipient (DGR) rely on Division 30 of the Income Tax Assessment Act 1997 (ITAA 1997) to provide relief to the donor from the capital gains tax (CGT) consequences arising from the donor's transfer of property to the charity?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The Charity is a not-for-profit organisation registered as a charity with the Australian Charities and Not for Profits Commission (ACNC) (the Charity).

The Charity is endorsed by the Australian Taxation Office as tax exempt.

The Charity is not endorsed as a deductible gift recipient (DGR).

The Charity is not currently eligible for endorsement as a DGR.

An individual is proposing to transfer ownership of the real property to the Charity.

The property is located in Australia.

The property has an estimated value of $ X to the Charity.

The individual is making a voluntary transfer of the property.

The Charity will pay $X as consideration for the transfer of the property.

Apart from the $X, the individual will not receive any material benefit or advantage from the transfer of ownership of the property.

The donor is currently a director of the Charity's board.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 30-15

Income Tax Assessment Act 1997 section 104-215

Income Tax Assessment Act 1997 section 118-60

Income Tax Assessment Act 1997 section 128-10

Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision

All legislative references are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise stated.

Summary

There is no CGT exemption, concession, discretion, or rule that allows the Charity to provide relief to the donor from the CGT consequences arising for the donor from a transfer of property to the Charity who is tax exempt. Regardless of whether the Charity is endorsed as a deductible gift recipient (DGR) it is not authorised under Division 30 or any other provision, to exempt the donor's capital gains arising from the transfer of property to the Charity during the donor's life.

Detailed reasoning

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

Under item 1 of the table in section 30-15, a gift of $2 or more made to a fund, authority or an institution in Australia that is endorsed as a DGR will be deductible.

There is no equivalent provision that applies to exempt or disregard the capital gains tax that arises from the donation of a gift to a DGR.

There is however, one circumstance where a donor does not have to pay CGT on donations of real property to a DGR, this is where the gift is made under a will (testamentary gifts) (section 118-60).

CGT event K3

When a person dies, any capital gain or loss made by them in respect of a CGT asset they owned just before dying is disregarded, unless CGT event K3 applies (sections 128-10 and 104-215).

CGT event K3 in section 104-215 happens if a CGT asset owned by a deceased person just before they die passes to a beneficiary in their estate that, when the asset passes, is an exempt entity. Under subsection 104-215(3) CGT event K3 is taken to happen just before the deceased's death.

An exempt entity is one whose ordinary and statutory income is exempt from income tax because of Division 50 (subsection 995-1(1)).

Therefore, CGT event K3 will happen in the circumstances where the deceased's property passes from the deceased estate to the Charity, who is an exempt entity.

Transfer of property to a deductible gift recipient under a will

Under subsection 118-60(1), a capital gain or loss made from a testamentary gift of property is disregarded if the gift would have been deductible under section 30-15 had it not been a testamentary gift.

Subsection 30-15(1) provides that entities can deduct a gift in the situations set out in the table in section 30-15. The table sets out who the recipient of the gift can be, the type of gift that can be made, how much can be deducted and any special conditions that apply.

Item 1 of the table sets out one of the situations in which a gift can be deducted. Under that item a gift of property must:

•         be made to a DGR that is in Australia

•         satisfy any gift conditions affecting the type of deductible gifts the recipient can receive, and

•         be property that is covered by one of the listed gift types.

Therefore, for a charity who is a DGR in Australia, the deceased would be entitled to a deduction under section 30-15 for the gift had it been made during their lifetime.

Accordingly, any capital gains or losses made from CGT event K3 happening are disregarded under subsection 118-60(1) if the property passes to the DGR.

Application to your circumstances

The Charity is not endorsed as a DGR. As such gifts made to the Charity are not deductible under section 30-15.

The donor is proposing to make a gift to the Charity during their lifetime so subsection 118-60(1) will not apply as this only applies to the transfer of propertyto a deductible gift recipient under a will.

There is no CGT exemption, concession, discretion, or rule that allows the Charity to provide relief to the donor from the capital gains tax consequences arising for the donor from a transfer of property to the Charity who is tax exempt. Therefore, a donor who donates property to the Charity during their lifetime will be subject to the ordinary capital gains tax rules on the donation of the property.

Conclusion

Regardless of whether the Charity is endorsed as a DGR, it is not authorised under Division 30, or any other provision, to exempt the donor's capital gains arising from the transfer of property to the Charity during the donor's life.