Private ruling: Deductibility of gift to a deductible gift recipient
Date of advice: 15 June 2018
Published: August 2018
Ruling period: 1 July 20XX – 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to a deduction under item 2 of the table in subsection 30-15(2) of the Income Tax Assessment Act 1997 (ITAA 1997) for the gift of the Property to the Fund? | A1: Yes. | Q2: Does section 78A of the Income Tax Assessment Act 1936 (ITAA 1936) operate to deny you the deduction in respect of the gift of the Property? | A2: No.

Relevant facts and circumstances: You are an Australian resident for tax purpose. You propose to purchase an asset (Property) and gift the Property to a deductible gift recipient (Fund) within 12 months of purchase. The Fund is governed by the Public Ancillary Fund Trust Deed (Trust Deed). The terms of the Trust Deed allow the Trustee to invest money in a way that an Australian law allows trustees to invest money. You will do all that is necessary to transfer ownership of the Property to the Fund. After the transfer, the Fund will become the legal and beneficial owner of the Property. It will hold the Property in its own right and have unfettered discretion in deciding how to deal with the Property in accordance with the terms of the Trust Deed. Neither you nor any of your associates are expected to or will receive any material benefit or advantage as a result of the donation. There will be no detriments, disadvantages, obligations or liabilities to the Fund when the Property is transferred. There will be no conditions or other agreements or arrangements between you and the Fund following the making of the donation.

Relevant legislative provisions: Section 30-15 Income Tax Assessment Act 1997 | Subsection 30-15(2) Income Tax Assessment Act 1997 | Section 30-17 Income Tax Assessment Act 1997 | Section 78A Income Tax Assessment Act 1936 | Subsection 78A(2) Income Tax Assessment Act 1936

Reasons for decision: Summary: Division 30 of the ITAA 1997 outlines the guidelines for the deductibility of gifts and donations. Section 30-15 of the ITAA 1997 provides that a gift to any funds or institutions listed is allowable as a deduction in the income year in which the gift is made, provided the gift meets the various conditions of the relevant subsections. To be able to claim a tax deduction for a gift it must: ● be made to a deductible gift recipient (DGR) ● be a gift of money or property that is covered by a gift type, and ● be truly a gift. Only gifts made to a DGR are tax deductible. The gift of the Property will be made to the Fund, which is a DGR. You will gift the Property to the Fund within 12 months of purchase. The gifting of the Property also satisfies the special conditions under item 2 of the table under subsection 30-15(1) of the ITAA 1997, being a gift valued at $2 or more, and the terms of the Trust Deed allowing the Trustee to invest money in a way that an Australian law allows trustees to invest money. Taxation Ruling TR 2005/13 Income tax: tax deductible gifts – what is a gift explains what constitutes a gift. The term gift is not defined in the legislation and so for the purposes of Division 30 of the ITAA 1997, it has the ordinary meaning. 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. The gifting of the Property to the Fund satisfies the above requirements as the Fund will become the legal and beneficial owner of the Property after the transfer from you. You will do everything that is necessary to transfer ownership to the Fund. The Fund will obtain immediate and unconditional possession and control of the Property. The transfer of the Property to the Fund arises from your desire to donate a portion of your wealth to the Fund. The donation arises by way of benefaction and is made voluntarily as there is nothing to suggest otherwise. You are not expected to receive any material benefit or advantage. There are no detriments, disadvantages, obligations, liabilities or limitations to the Fund when the gift is donated. As a result of the donation of the Property having all the characteristics of a gift, you are entitled to a deduction for the gift. The amount of the deduction is the lesser of the market value of the Property on the day of the gift is made and the purchase price. In some circumstances section 78A of the ITAA 1936 will apply to deny a deduction under Division 30 of the ITAA 1997 even if a particular transfer of property may arguably be a gift. Section 78A of the ITAA 1936 applies if: (a) The amount or value of the gift is or may be expected to diminished (paragraph 78A(2)(a)); (b) Another fund or institution makes or becomes liable to make a payment to any person or incur any detriment, liability or obligation (paragraph 78A(2)(b)); (c) The giver or the giver’s associate obtains, or will obtain, or may reasonably expect to obtain any benefit, right or advantage apart from the tax deduction (paragraph 78A(2)(c)); (d) The recipient DGR or another fund or institution has acquired or will acquire property from the giver or the giver’s associate (paragraph 78A(2)(d)). Section 78A of the ITAA 1936 is not intended to apply to genuine gifts made in ordinary circumstances; rather it is intended to render ineffective arrangements designed to exploit the availability of deductions in respect of gifts. Based on the facts provided in the present case, the provisions of section 78A of the ITAA 1936 will not apply to deny you the deduction.