Private ruling: Income Tax: Deduction - Disposal of Trading stock as a gift to a hospital
Published: July 2012
Ruling period: Financial year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Is the market value of the trading stock at the time it was donated to the Hospital deductible under subsection 30-15(2) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. X Co (the company) is a resident company. The company's business is selling equipment to the hospitals and providing storage facilities. It owned a large number during the financial year ended 30 June 2011. The company donated these equipments to the hospital during the financial year ended 30 June 2011. The assets were donated to the hospital as the hospital needed them to start their new theatres. Also, the managing director confirmed that the unit is functioning now. The managing director of the company mentioned that he voluntarily gifted those assets to the hospital when he found out that the hospital needed them to start their new theatres. The company did not receive any benefits from the hospital as return.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 30 | Income Tax Assessment Act 1997 section 30-15 | Income Tax Assessment Act 1997 section 30-20 | Income Tax Assessment Act 1997 Subdivision 385-E Does Part IVA, or any other anti-avoidance provision, apply to this ruling? | Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax .

Reasons for decision: Summary: Division 30 of the ITAA 1997 provides that the types of non-testamentary gifts (to the value of $2 or more) to a Deductible gift recipient (DGR) that can be deductible. Item number 1.1.1 of section 30-20 of the ITAA 1997 includes a public hospital. The hospital is an Australian public hospital and is an endorsed DGR. In this case the hospital is a government hospital and an endorsed DGR. Gifts of trading stock made to eligible recipients are not subject to the normal restrictions that apply to most other gifts. Accordingly, the company is eligible to claim deduction under section 30-15 of the ITAA 1997 for the market value of the trading stock at the time of the disposal to the hospital. | Detailed Reasoning - Detailed reasoning: Division 30 of the ITAA 1997 provides that the types of non-testamentary gifts (to the value of $2 or more) to a Deductible gift recipient (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. Item number 1.1.1 of section 30-20 of the ITAA 1997 includes a public hospital. The hospital is an Australian public hospital and is an endorsed DGR. In this case the hospital is a government hospital and an endorsed DGR. Gifts of trading stock made to eligible recipients are not subject to the normal restrictions that apply to most other gifts. Gifts of trading stock disposed off outside the ordinary course of business are deductible regardless of when the stock was acquired by the company under section 30-15 of the ITAA 1997. The amount of the deduction is taken to be the market value of the stock on the day the gift was made. No deduction is allowed if the gifted property is made the subject of an election to claim concessional treatment on the basis of a forced disposal under Subdivision 385-E of the ITAA 1997. In this case the item of trading stock the company donated to the hospital was equipment and was not subject to the concessional treatment under Subdivision 385-E of the ITAA 1997. | Detailed Reasoning - Transfer of property voluntarily: Further, the courts have described a gift as having certain specified attributes. If a transfer fails to have one or more of these attributes, the transfer will not ordinarily be considered a gift. Paragraphs 61-63 of the Taxation Ruling TR 2005/13 states that: 61. The making of a gift to a DGR involves the transfer of money or property to that DGR: section 30-15 of the ITAA 1997. In the simplest cases this involves the delivery of money (cash, cheque or electronic transfer of funds) or goods to the DGR. 62. In each case it is necessary to ascertain whether a transfer has occurred, what property has been transferred, and when the transfer took place. This is to ensure that ownership of identifiable property has been divested and has been transferred to the DGR (c.f., Re Rose (dec'd); Rose v. Inland Revenue Commissioners [1952] 1 All ER 1217). 63. In Milroy v. Lord , Turner LJ said that for a gift to be valid and effectual, the giver: · must have done everything which according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him. Further, paragraphs 92 of TR 2005/13 states the case authorities make it clear that for a transfer of property to be a gift it must be made voluntarily. A transfer will be voluntary if it is the act and will of the disposer and there was nothing to interfere with or control the exercise of that. A transfer of property will constitute a 'gift' if the property was transferred voluntarily ( Cyprus Mines Corporation v. FC of T 78 ATC 4468; 9 ATR 33), and no advantage of a material character was received by the company in return ( FC of T v. McPhail (1968) 41 ALJR 346; 15 ATD 16; 10 AITR 552; Hodges v. FC of T 97 ATC 2158; 37 ATR 1091). A transfer made voluntarily will not be considered where: · the choice is offered as an alternative to discharging or reducing the givers contractual obligation to the DGR or an associate of the DGR; · the choice, once exercised, has the effect of discharging or reducing the givers contractual obligation owed to the DGR or associate of the DGR. In this case the company transferred the trading stock to the hospital voluntarily and this will not discharge or reduce any contractual obligation of the company with the hospital. | Detailed Reasoning - Material benefit: Where the giver is aware that the transfer of property will result in detriments, disadvantages, obligations, liabilities or limitations to the recipient, the attribute of benefaction may be missing. Whether benefaction is in fact conferred will depend to a large extent on the proportion which the detriment, disadvantage, obligation, liability or limitation bears to the value of the property transferred. The benefactor in this case will be the hospital. The facts indicate that the hospital needed them to start a new theatre and the facts indicate that the unit is currently functioning. Therefore, the hospital is advantaged by receiving the gift without any material detriment. | Detailed Reasoning - Benefit or advantage: In order to constitute a gift, the giver must not receive a benefit or an advantage of a material nature by way of return. It does not matter whether the material benefit or advantage comes from the DGR or another party. In the C ase 12,314 Re Hodges v. FC of T 97 ATC 2158; (1997) 37 ATR 1091, the company's payment to a DGR to defray the cost of his airfares for travelling overseas to work on an aid project was not considered a tax deductible gift. As a result of that payment, he was given the advantage of taking part in the project. However, in this case as explained above the company did not receive a benefit or advantage by the disposal of the trading stock to the hospital outside the course of their business as a gift. Accordingly, the company is eligible to claim deduction under section 30-15 of the ITAA 1997 for the market value of the trading stock at the time of the disposal to the hospital.

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