Private ruling: Deduction - Gifts
Published: November 2014
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2013

Ruling: Question and Answer | Is the Trustee entitled to a deduction for the unused cultural gift program gift deductions? | No

Relevant facts and circumstances: During their life time, a taxpayer made donations of art works to various galleries. All donations have been ratified by the Department of the Environment, Water, Heritage and the Arts and have received an Australian Government donation identification number. Pursuant to subdivision 30-CB of the Income Tax Assessment Act 1997 they were able to spread their deductions for gifts over a period of up to 5 years. On passing away they had unused cultural gift program deductions. Assumption(s) None

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 30-15 | Income Tax Assessment Act 1997 Subdivision 30-DB | Income Tax Assessment Act 1997 Section 26-55 | Income Tax Assessment Act 1997 Paragraph 26-55(1)(ba)

Reasons for decision: Summary: Section 30-15 of the Income Tax Assessment Act1997 (ITAA 1997) allows you to deduct a gift that you make in certain situations. The gift(s) that the deceased made fit into one or more of those situations; accordingly they were entitled to a deduction for the gift(s) that were made. Subdivision 30-DB of the ITAA 1997 allows a taxpayer to make an election to spread certain gift deductions over up to 5 income years. You may make a written election to spread the deduction over the current income year and up to 4 of the immediately following income years. The election must specify the percentage (if any) of the deduction that you will deduct in each of the income years. The election must be made before you lodge your income tax return for the income year in which you made the gift. You may vary an election at any time. The variation can only change the percentage that you will deduct in respect of income years for which you have not yet lodged an income tax return. Where an election has been made you can deduct the amount corresponding to the percentage you specified for that year. If a deceased individual had elected to spread a gift deduction and dies before they had deducted all instalments of the gift, the personal representative is able to vary the election so as to claim the balance of the deduction in the final year return of the deceased. The variation must be done in accordance with subdivision 30-DB of the ITAA 1997. Apart from the 5-year instalment rule, a gift deduction is not able to produce a carry-forward tax loss for the donor, but can only reduce taxable income to nil (paragraph 26-55(1)(ba) of the ITAA 1997). As a result, the value of any excess gift deduction is lost to the donor. On death, if the personal representative elects to have the balance of the value of a gift deducted in the final year return and this would produce a tax loss, then the deduction is limited by section 26-55 of the ITAA 1997. The value of the excess gift deduction cannot be passed on to the personal representative and so is lost.