Private ruling: Donating property
Published: April 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q2: Will a capital gains tax event occur on the transfer of ownership of the unit to the registered charitable organisation? | A1: Yes

Relevant facts and circumstances: You and your spouse purchased a residential unit as joint tenants after 20 September 1985 to make provision for a relative. When this proved no longer necessary you rented the unit out. In an effort to simplify your responsibilities, you have now decided to donate the unit to a registered charitable organisation that is endorsed as a deductible gift recipient (DGR). The legal title will be transferred to the DGR entirely. The transfer is wholly voluntary. There will not be any detriments, disadvantages, obligations, or liabilities attached to the donation of the unit. There will not be any material benefit or advantage. The property will be wholly donated to the DGR for them to use as they wish. The property is not a heritage property. The property is valued in excess of $5,000.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 30-15 Income Tax Assessment Act 1997 Section 100-10 Income Tax Assessment Act 1997 Section 102-5 Income Tax Assessment Act 1997 Section 102-10 Income Tax Assessment Act 1997 Section 104-10

Reasons for decision: Summary: Gifts or donations may be deductible under section 30-15 of the Income Tax Assessment Act 1997 (ITAA 1997). To be accepted as a gift for tax purposes, donations must be made voluntarily, not provide a material benefit for the donor and essentially arise from benefaction and a detached and disinterested generosity on behalf of the donor. To be entitled to a deduction for a gift or donation, the following requirements need to be met: 1. the donation must truly be a gift; 2. it must be made to a deductible gift recipient, acknowledged by the Australian Taxation Office (ATO); 3. each gift must be of $2 value or more either in money or property other than money; and 4. if property other than money is given, the property must have been purchased by the person making the gift during the 12 months before the gift is made and the amount deductible is the lesser of the cost price of the property or its value at the time it is given. Where the property was not purchased within the previous 12 months and is valued at more than $5,000, the Commissioner determines the value of the property and thus the amount deductible. Taxation Ruling TR 2005/13 Income tax: tax deductible gifts - what is a gift explains the term gift for Division 30 of the ITAA 1997 purposes. In the case of property, TR 2005/13 explains that in order to be deductible, the property must have belonged to you before donating it and must become the property of the recipient. This means that you must do everything that is legally necessary to transfer the property to the charitable organisation. If less than full title of the transferred property is transferred, a gift deduction will not arise. You are donating your jointly owned residential unit to a registered charitable organisation which is endorsed as a deductible gift recipient. The donation is voluntary with no material benefits or advantages to be gained by you. As your donation satisfies all requirements you are entitled to a deduction. | Detailed Reasoning - Capital gains tax: When you donate property, there may be capital gains tax (CGT) consequences. CGT is income tax paid on any net capital gain made as the result of a CGT event taking place. CGT events are the different types of transactions that may result in a capital gain or capital loss. As a general rule whenever a CGT asset, such as property that was acquired after 20 September 1985 (post-CGT), is sold (or otherwise disposed of) as part of a CGT event, you will be subject to the CGT provisions and will need to determine whether a capital gain or capital loss has resulted. This type of CGT event is known as CGT event A1 and generally occurs whenever there is a change in ownership of a post-CGT asset from one entity to another. Any capital gain is added to any other assessable income you derived for the relevant year and you are then taxed at the appropriate marginal tax rate. A capital loss can be offset against other current year capital gains or carried forward indefinitely to be offset against future year capital gains. CGT event A1 will occur when you transfer the property to the charitable organisation and because the residential unit is not your main residence and has been used to produce assessable income you are not able to disregard any capital gain or capital loss that results. Conclusion You are entitled to claim a deduction for donating your residential unit to the DGR. There will be capital gains tax consequences as a result of the change in ownership of the unit.

Question 1: Is the donation of your residential unit to a registered charitable organisation a deductible gift?