Explanatory Memorandum
(Circulated by the authority of the Treasurer the Hon Ralph Willis, M.P.)CHAPTER 8 - DEDUCTIONS FOR BEQUESTS OF SIGNIFICANT CULTURAL VALUE MADE TO CERTAIN INSTITUTIONS
Overview
8.1 The Bill will allow an income tax deduction for a testamentary gift of property to specified funds, authorities or institutions under the Cultural Bequests Program. The Bill will also exempt those gifts from the application of the capital gains tax provisions.
Summary of the amendments
8.2 The proposed amendments will:
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- allow an income tax deduction for a testamentary gift of selected items of cultural significance to the nation, and
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- exempt the disposal of the gifted property from the application of the capital gains tax provisions of the Income Tax Assessment Act 1936 (the Act). [Clause 82]
8.3 The selection process for the bequests program will commence in the 1994/95 financial year. The income tax deductions and capital gains tax exemptions will be available to people who have received a certificate from the Minister in relation to the gift and have died on or after 1 July 1994. [Clause 83]
Background to the legislation
8.4 The Cultural Bequests Program was announced in the 1993-94 Budget. The Program is intended to encourage people to donate, by bequest, items of cultural significance to public funds, galleries, libraries or museums by providing tax deductibility for the gift and exemption from capital gains tax on the disposal of the gifted property.
8.5 The Program will operate as a supplement to the Taxation Incentives for the Arts (TIA) scheme. The TIA scheme provides a tax deduction for gifts of works of cultural items where the gifts are for inclusion in the collections maintained by the Australiana Fund, public art galleries, libraries or museums. The TIA scheme is administered by the Department of Communications and the Arts through a committee established specifically for that purpose.
Explanation of the amendments
8.6 The amendments will provide a tax deduction and capital gains tax exemption to taxpayers who have been issued with a certificate by the Minister for Communications and the Arts (The Minister). This certificate will certify the taxpayer's agreement to bequeath items of property to the relevant institution and will certify the value of the gift and the Minister's approval. The gift deduction will be available after the death of the taxpayer and will be deductible in the year the taxpayer dies.
Testamentary gifts to be deductible
8.7 A testamentary gift to a fund, gallery or museum will be an allowable deduction if it satisfies conditions for deductibility listed in new subsection 78(6A). The donor will retain legal ownership of the gift during their lifetime and be able to opt for possession of the cultural item or collection to be transferred to the recipient institution either during their lifetime or after death. [Paragraph (d) of clause 83, new subsection 78(6A)]
8.8 The Program will be administered by the Department of Communications and the Arts. Concepts central to the administration of the scheme are:
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- the certificate;
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- approval guidelines;
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- maximum approval limit;
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- section 79C amount.
8.9 The certificate issued by the Minister will:
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- notify approval of the gift,
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- specify the value of the gift,
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- contain other information that the Commissioner of Taxation may require.
An example of other information that the Commissioner of Taxation may require is the name of the recipient institution. The certificate will be the formal approval of the agreement to the bequest by the Minister. It will also be evidence of the value of the gift deduction and should be retained by the taxpayer or the taxpayer's representatives to be produced on request of the Commissioner. [Paragraph (d) of clause 83, new subsection 78(6B)]
8.10 The Minister must have regard to written guidelines in deciding whether to approve a particular gift and determining the value of that gift. Those guidelines may require the Minister to take into account:
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- specified criteria; or
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- recommendations of particular bodies; or
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- any other factors.
8.11 It is expected that these guidelines will also include application, valuation and selection procedures for the gifts.
8.12 The guidelines must be published by the Minister in a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901. [Paragraph (g) of clause 83, new paragraph 78(25A)(a)]
8.13 There will be a limit to the total dollar amount for which certificates may be issued in any financial year. The Minister must specify in writing the amount of this maximum approval limit for each financial year. [Paragraph (d) of clause 83, new paragraph 78(6E)(a)]
8.14 The Minister is prohibited from issuing any certificates in any year of income until the maximum approval limit for the particular year has been specified. Paragraph (d) of clause 83, new paragraph 78(6E)(b)]
8.15 Additionally, the Minister must not issue any certificate if the value of that certificate, when added to the value of those already issued, will exceed the maximum approval limit in a financial year. [Paragraph (d) of clause 83, new paragraph 78(6E)(c)]
8.16 The maximum approval limit must be published by the Minister in a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901 . [Paragraph (g) of clause 83, new paragraph 78(25A)(b)]
8.17 Where the deductible amount of a gift under section 78 of the Act exceeds the taxable income in a year, the excess may not create or increase a carried forward loss [section 79C].
8.18 Unlike deductions for all other gifts allowable under section 78, a deduction allowable under the Cultural Bequests Program may be spread between two tax returns. The gift deduction will be available in the return to the date of death of the donor. If there is any undeducted amount remaining (the section 79C amount), the undeducted amount will be deductible in the donor's estate return from the date of death to the end of that financial year. [Paragraph (d) of clause 83, new subsection 78(6G)]
8.19 It should be noted that this spreading of the deduction only applies to the single year of income in which the taxpayer dies. [Paragraph (d) of clause 83, new subsections 78(6F and 6G)]
8.20 A taxpayer has agreed to bequeath an artwork on 2February1995 and has a certificate from the Minister approving the bequest and stating the value of the gift to be $500,000 . The taxpayer dies on 10January 1996. The taxpayer's income tax return to 10January1996 has net income of $200,000 - $200,000 of the gift deduction is offset against that income, reducing the taxable income to nil. The balance of the gift deduction ($300,000) is the section 79C amount. The donor's first estate return for the period 11 January 1996 to 30June1996 has net income of $100,000. The section 79C amount, may be offset against that income to reduce the taxable income to nil. The undeducted balance of $200,000 is lost as section 79C precludes the carry forward of the gift deduction to another year of income.
| Net income in donor/taxpayer's return 1/7/95 to 10/1/96 | $200,000 | |
| Gift deduction (Bequest Program) | $200,000 | $300,000 |
| Taxable income | nil | |
| Net income in donor/taxpayer's estate return 11/1/96 - 30/6/96 | $100,000 | |
| Gift deduction (79C amount) | $100,000 | nil |
| Taxable income | nil |
8.21 The value of the gifted property is the value shown in the certificate at the time of the agreement to bequest and not at the time of death of the taxpayer, which may occur many years later [paragraph (e) of clause 83, new 78(15A)] . It is expected that the guidelines to be published by the Minister [refer to paragraphs 8.10-12] will provide more detail on valuation procedures.
Gift an allowable deduction after death of taxpayer
8.22 The gift deduction under the Bequest Program is allowable when it is made. To avoid uncertainty this is taken to be at the time of death of the taxpayer. To be entitled to the deduction, the property must have been actually given to and accepted by the recipient institution. [Paragraph (f) of clause 83, new subsection 78(16A) and paragraph 78(6A)(g)]
8.23 The proposed amendments will exempt gifted property under the Cultural Bequests Program from the application of the capital gains and losses provisions of the Act. This is achieved by specifying that the capital gains and losses provisions do not apply to the disposal of an asset under the Cultural Bequests Program. [Clause 84, subsection 160L(9)]