Edited version of private advice

Authorisation Number: 1052227553159

Date of advice: 5 March 2024

Ruling

Subject: CGT - gifting of property

Questions and answers

Question 1

Is the gifting of your property to a gift deductible recipient (GDR) a deductible gift?

Answer

Yes.

Question 2

Will a capital gains tax (CGT) event occur on the transfer of ownership of the property to the GDR?

Answer

Yes.

Question 3

Can you use carried forward capital losses from prior years to offset capital gains incurred upon the disposal of the property?

Answer

Yes.

Question 4

Are you entitled to claim the CGT discount?

Answer

Yes.

This ruling applies for the following period:

Income year ending XX XXXX 20XX

The scheme commenced on:

XX XXXX 20XX

Relevant facts and circumstances

You purchased property 20XX.

The ownership interest is 50/50.

You will be making a gift of the property to a charitable organisation that is endorsed as a deductible gift recipient (DGR).

You will claim a deduction for the value of the property as determined by the Commissioner on your valuation certificate obtained from the ATO.

You have drafted a deed of assignment outlining the terms of the gift from yourselves to the registered charitable organisation.

You have prepared relevant transfer documentation to complete the transfer of title of the property.

The legal title will be transferred to the DGR entirely.

The transfer is wholly voluntary.

You will not receive any material benefit or advantage.

The property will be wholly donated to the DGR for them to use as they wish.

You are carrying capital losses from prior income years.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 30-15

Income Tax Assessment Act 1997 Section 30-212

Income Tax Assessment Act 1997 Section 30-225

Income Tax Assessment Act 1997 Section 100-50

Income Tax Assessment Act 1997 Section 102-5

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 110-25

Income Tax Assessment Act 1997 Subdivision 115-A

Reasons for decision

Summary

You are entitled to claim a deduction for donating your ownership interests in the property to a registered charitable organisation; and there will be capital gains tax consequences as a result of the change in ownership of the property.

Detailed reasoning

Gifts or donations may be deductible under section 30-15 of the Income Tax Assessment Act 1997 (ITAA 1997). To be accepted as a gift for tax purposes, donations must be made voluntarily, not provide a material benefit for the donor and essentially arise from benefaction and a detached and disinterested generosity on behalf of the donor.

To be entitled to a deduction for a gift or donation, the following requirements need to be met:

1. the donation must truly be a gift;
2. it must be made to a deductible gift recipient, acknowledged by the Australian Taxation Office (ATO);
3. each gift must be of $2 value or more either in money or property other than money; and
4. if property other than money is given, the property must have been purchased by the person making the gift during the 12 months before the gift is made and the amount deductible is the lesser of the cost price of the property or its value at the time it is given.

Alternatively, where the property was not purchased within the previous 12 months and is valued at more than $5,000, the Commissioner determines the value of the property and thus the amount deductible.

Taxation Ruling TR 2005/13Income tax: tax deductible gifts - what is a giftexplains the term gift for Division 30 of the ITAA 1997 purposes.

In the case of property, TR 2005/13 explains that in order to be deductible, the property must have belonged to you before donating it and must become the property of the recipient. This means that you must do everything that is legally necessary to transfer the property to the charitable organisation. If less than full title of the transferred property is transferred, a gift deduction will not arise. In the case of jointly owned property, section 30-225 of the ITAA 1997 provides that you can deduct the amount of the gift which accords with your ownership interest in the property.

As the property was not purchased within the previous 12 months and is valued at more than $5,000, you will obtain a valuation certificate as determined by the Commissioner as under section 30-212 of the ITAA 1997.

Application to your situation

You are donating your jointly owned property to a charitable organisation which is endorsed as a DGR. The donation is voluntary with no material benefits or advantages to be gained by you. As your donation satisfies all requirements you are each entitled to a deduction for the value of your ownership interest the property as determined by the Commissioner on your valuation certificate obtained from the ATO.

Capital gains tax

When you donate the property, there may be capital gains tax (CGT) consequences.

CGT is income tax paid on any net capital gain made as the result of a CGT event taking place. CGT events are the different types of transactions that may result in a capital gain or capital loss. As a general rule, whenever a CGT asset, such as property that was acquired after 20 September 1985 (post-CGT), is sold (or otherwise disposed of) as part of a CGT event, you will be subject to the CGT provisions and will need to determine whether a capital gain or capital loss has resulted.

This type of CGT event is known as CGT event A1 and generally occurs whenever there is a change in ownership of a post-CGT asset from one entity to another.

Any capital gain is added to any other assessable income you derived for the relevant year; and you are then taxed at the appropriate marginal tax rate.

Section 100-50 of the ITAA 1997 allows that if you have carried forward capital losses, you use them to offset your current year capital gains. If your prior year capital losses extinguished your current year capital gain, you do not have a current year capital gain.

Subdivision 115-A of the ITAA 1997 allows you to discount your capital gains. When you sell or otherwise dispose of an asset, you can reduce your capital gain by 50%, if both of the following apply:

• you owned the asset for at least 12 months
• you are an Australian resident for tax purposes.

This is called the capital gains tax (CGT) discount.

If you have any capital losses from other assets (including carried forward capital losses), you must subtract these from your capital gains before applying the discount.

If you are entitled to the discount for an asset, you reduce the remaining capital gain on that asset by 50% and report this amount in your income tax return.

Application to your situation

CGT event A1 will occur when you transfer your ownership interests the property to the charitable organisation, and you are not able to disregard any capital gain or capital loss that results. Capital losses carried forward from prior years can be used to offset capital gains incurred.

As you have jointly owned the property for more than 12 months and you are Australian residents for tax purposes, you are entitled to apply the CGT discount to further reduce your capital gain by 50%.