Private ruling: Timing of deduction and CGT event A1
Date of advice: 13 February 2017
Published: July 2017
Ruling period: Year ending 30 June 20YY | Year ending 30 June 20ZZ
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the capital monies donated by the company to a building fund be deductible under section 30-15 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: If the disposal of the surplus land gives rise to a CGT event A1 for the company under section 104-10 of the ITAA 1997 at the time the contract for that disposal is entered into and the company donates the monies from that disposal to the building fund after settlement and during the income year following entry into the contract, can the deduction available to the company under section 30-15 of the ITAA 1997 for that donation be claimed in the year in which the CGT event happens? | A2: No. | Q3: If the disposal of the surplus land under contract gives rise to a CGT event A1 for the company under section 104-10 of the ITAA 1997 and the company donates the monies from that disposal to the building fund after settlement and during the income year following entry into the contract, can the CGT event be held to happen on the date of settlement (i.e. in the income year in which the company is entitled to a deduction under section 30-15 of the ITAA 1997 for the donation)? | A3: No.

Relevant facts and circumstances: The company owns surplus land which is part of an Educational facility. The company proposes to sell the surplus land not required by the facility. An offer has been made by an independent third party to purchase the surplus land from the company. Based on this unsolicited offer the amount is considered to be a fair market value of the surplus land. All parties involved are unrelated. Acceptance of this offer has occurred. This will result in a capital gain to the company. A contract for the disposal of the surplus land is to be entered into. Whilst the contract for sale of the surplus land is expected to be executed during the 20YY income year, settlement is expected to occur during the 20ZZ income year. A building fund has been established to receive donations solely to enable the future development of both the Educational Facility and further campuses. The building fund is: ● registered with the Australian Charities and Not-for-profits Commission ● endorsed as a Deductible Gift Recipient (DGR) covered by Item 1 of the table in section 30-15 of the ITAA 1997, and ● exempt for income tax purposes. It is proposed that when the company receives the funds from the sale of the surplus land (at settlement) it will donate the funds to the building fund. This will enable the funds to then be used by the building fund for further building and development of further facilities. Assumption(s) 1. The company will receive written evidence of its donation to the building fund, such written evidence identifying the building fund by name and ABN, and stating that the receipt is a gift. 2. The monies donated by the company to the building fund will be used for a purpose covered by Item 2.1.10 in the table under section 30-25 of the ITAA 1997.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 30. | Income Tax Assessment Act 1997 section 30-15. | Income Tax Assessment Act 1997 section 30-17. | Income Tax Assessment Act 1997 paragraph 30-17(2)(a). | Income Tax Assessment Act 1997 section 30-25. | Income Tax Assessment Act 1997 Subdivision 30-BA. | Income Tax Assessment Act 1997 section 300-228. | Income Tax Assessment Act 1997 section 104-10. | Income Tax Assessment Act 1997 subsection 104-10(3). | Income Tax Assessment Act 1997 subsection 900-110(1). | Australian Charities and Not-for-profits Commission Act 2012 .

Reasons for decision: Summary: The monies donated by the company to the building fund will be deductible under section 30-15 of the ITAA 1997. | Detailed Reasoning - Section 30-15 of the ITAA 1997: Gifts and donations valued at $2 or more (whether cash or property) are deductible under section 30-15 of the ITAA 1997 if the rules in Division 30 are satisfied. A gift or donation is not deductible under Division 30 unless the taxpayer has written evidence of the gift or donation (subsection 900-110(1)). Further, a receipt for a gift or donation must show the name and ABN (if any) of the recipient DGR and that the fact the receipt is for a gift (section 30-228). The building fund received endorsement as a DGR. It is covered by Item 1 of the table in section 30-15. | Detailed Reasoning - What qualifies as a gift?: In order to constitute a gift for the purposes of Division 30, a donation (whether of money or property) has the following characteristics and features (Taxation Ruling TR 2005/13): ● 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. It is considered that the cash donation from the company to the building fund will be a gift for the purposes of Division 30. | Detailed Reasoning - School Building Funds: Gifts to a school or college building fund are deductible if the fund, or the entity that legally owns the fund or the government body constituted by the persons who control the fund, is endorsed under Subdivision 30-BA (section 30-17) and the fund satisfies the requirements of Item 2.1.10 in section 30-25. The building fund is endorsed under Subdivision 30-BA (paragraph 30-17(2)(a)) and (as assumed for the purposes of this ruling) will satisfy the requirements of Item 2.1.10 in section 30-25. Namely, the fund is a public fund established and maintained solely for the purpose of providing money for the acquisition, construction or maintenance of a school building; the building for which the fund is established and maintained will be used, or it must (objectively) be intended that it will be used, as a school by a government, a public authority or a non-profit society or association; and the fund is registered under the Australian Charities and Not-for-profits Commission Act 2012 (Taxation Ruling TR 2013/2). | Detailed Reasoning - Deductible amount: The amount of the deduction available to the company for its donation to the building fund will be the amount of the donation. | Summary: The deduction will only be available to the company under section 30-15 for the income year during which the donation to the building fund is made. The CGT event A1 for the company from the sale of the surplus land happens on the date the contract for the sale is entered into (rather than the date of the settlement). Therefore, where the contract for the disposal of the surplus land is entered into in an income year prior to that in which the donation is made, the CGT event will not happen in the same income year in which the deduction is available. | Detailed Reasoning - Detailed reasoning: Essentially there are two separate issues which need to be considered in isolation of each other as (for tax purposes) they are independent of each other. Firstly, there will be the sale of the surplus land by the company pursuant to a contract for sale, with settlement possibly occurring in the following income year. Secondly there is the donation of the monies from the sale of the surplus land to the building fund following settlement. | Detailed Reasoning - CGT Event A1: CGT event A1 happens under section 104-10 if you dispose of a CGT asset. Generally, you dispose of a CGT asset when a change of ownership occurs from you to another entity. When a contract for the disposal is entered into, the time of the event is when the contract is entered into (subsection 104-10(3)). A CGT event A1 will therefore happen in respect of the company when the contract for the disposal of the surplus land is entered into. | Detailed Reasoning - Contract settled in later year: Taxation Determination TD 94/89 1 (TD 94/89) provides the Commissioner's view as to the year of income you are required to include a capital gain or capital loss in relation to land disposed of under a contract which is made in one year of income, but which is settled in a later year of income. TD 94/89 provides that where the contract is settled in a later income year, you are required to include a capital gain or capital loss in the income year in which the contract is made, not in the income year in which the contract is settled. However, you are not required to include any capital gain or capital loss in the appropriate year until an actual change of ownership occurs. Settlement effects a change of ownership and a disposal. When settlement occurs, you are required to include any capital gain or capital loss in the income year in which the contract was made. If an assessment is already made for that year of income, you may need to have that assessment amended. Although it is not required, you may, for convenience, include the capital gain or capital loss from the disposal of the land in your return for the income year in which the contract was entered into if you lodge that return before settlement occurs. Where an assessment is amended to include a net capital gain, and a liability for interest arises, the remission of interest will be dealt with in each case on its own merits. In the case of the company, as a contract for the disposal of its surplus land will be executed in the 20YY income year, the CGT event A1 will, pursuant to subsection 104-10(3), arise in that year. As a CGT event A1 which arises from the disposal of a CGT asset under contract does not happen upon settlement of the contract for the disposal, the capital gain realised by the company from the disposal of its surplus land will not arise in the following income year (if settlement were to occur in that year). Whilst the company will be required to include the capital gain in its income tax return for the 20YY income year; it is not required include that capital gain until settlement occurs. The timing of the company's deduction under section 30-15 for the donation to the building fund of its monies from the sale of the surplus land following settlement, i.e. in the year in which the donation is made, does not impact on the operation of subsection 104-10(3). 1 Taxation Determination TD 94/89: Income tax: capital gains: in what year of income is a taxpayer required for tax purposes to include a capital gain or loss in relation to land disposed of under a contract which is made in one year of income, but which settled in a later year of income?