Tax Tip 155: Tax Deductions of Donations to Charities on Death

Discussion in 'Accounting & Tax' started by Terry_w, 23rd May, 2017.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Tax Deductions of Donations to Charities on Death


    Many people want to donate to charities after they die through their wills.

    Normally a gift to a charity that is a deductible gift recipient is deductible to the giver. S 30-15 ITAA97. INCOME TAX ASSESSMENT ACT 1997 - SECT 30.15 Table of gifts or contributions that you can deduct


    However where the gift is via a will no deduction is available – s 30-15(2) ITAA97.


    There are a couple of strategies to overcome this wasted deduction.


    One Potential Strategy
    X wants to make a gift of $1mil to the Cancer Council NSW on his death.

    If he does this his estate won’t be able to claim a deduction. Even if it did there would be little to no income to use up the deduction.

    Instead X talks to his daughter who earns $70,000. He leaves her $1mil and she agrees to donate $50,000 per year for the next 20 years. By doing this the daughter will be able to claim a deduction of $50,000 per year and end up with a taxable income of $20,000 and will therefore not have to pay any income tax.

    Even if the daughter donated the $1mil all at once she would have any income loss carried forward, so there would still be a substantial tax benefit to her, but less than if she staggered it out. This is because of the tax free threshold.
     
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  2. datto

    datto Well-Known Member

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    If the daughter decided to donate 50K pa it will reduce her taxable income by that amount but she will also earn about 20K in interest pa. Ah, the headaches that money create.
     
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  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Actually there are limits on deducting gifts - they cannot give rise to a tax loss because of s26-55 ITAA97 INCOME TAX ASSESSMENT ACT 1997 - SECT 26.55 Limit on deductions
     
  4. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I cannot think of a single reason why a deceased person would seek a tax deduction
     
  5. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Tax deductible gifts can be deferred up to 5 years. There is a specific process to do this. Then they dont create a loss...Or a $18200 taxable income ;)
    I have assisted somevery significant tax gifting this way. And sometimes ways to allow family to deduct that gift. Or if a taxpayer dies this can allow each of the beneficicaries a gift that is deductible
     
  6. Rob G

    Rob G Well-Known Member

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    Also CGT event K3 to consider for testamentary gifts of CGT assets to charities.
     
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