Private ruling: Gifts
Published: May 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the Entity be entitled to a deduction under Division 30 of the Income Tax Assessment Act 1997 for granting a rent free lease of a unit/shop to a deductible gift recipient? | A1: No

Relevant facts and circumstances: The Entity purchased property. The Entity wishes to grant a rent free lease of part of the property to a deductible gift recipient (DGR). The DGR is endorsed by the ATO. The DGR is prepared to give the Trust a tax deductible donation in kind receipt for this transaction.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 30

Reasons for decision: Summary: Division 30 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the rules for working out deductions for certain gifts or contributions. Taxation Ruling TR 2005/13 explains what a gift is for the purposes of the gift deduction provisions and states at paragraph six: 6. Division 30 of the ITAA 1997 provides that the types of non-testamentary gifts (to the value of $2 or more) to a DGR that can be deductible include: • money; • property (including trading stock) purchased during the 12 months before the gift was made; • property valued by the Commissioner at more than $5,000; • an item of trading stock disposed of outside the ordinary course of business; • property under the Cultural Gifts Program; or • gifts of places listed in the Register of the National Estate. Deductions are also allowed for testamentary gifts, but only if they are made under the Cultural Bequests Program under Subdivision 30-D of the ITAA 1997. Paragraph thirteen of TR 2005/13 lists the characteristics of and features of a gift as described by the courts: 13. Rather than attempting a definition of gift, 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. | Detailed Reasoning - Is there a transfer or beneficial interest in property?: For there to be a transfer, the property which belonged to the giver must become the property of the Deductible Gift Recipient (DGR). The giver must have proprietary rights in the property just prior to its transfer. Paragraph 71 of TR 2005/13 provides the following example: 71. T owns land. Whilst continuing to own the land, she grants, by deed, a 20 year lease over the land to a DGR with no premium or rent payable. T has not made a gift of the lease to the DGR. While the DGR obtains a proprietary interest in the land as a result of the grant of the lease, which is personal property, T has not transferred this personal property to the DGR. She herself was never the owner of that personal property (see Commr of Taxes (Qld) v. Camphin (1937) 4 ATD 315; 57 CLR 127; 1 AITR 147). Applying the above to your situation there will not be a transfer of personal property if the Entity grants a rent free lease of a part of the property to a DGR. The granting of a rent free lease of a part of the property to a DGR will not meet the gift requirements under Division 30 of the ITAA 1997.