Generous New Tax Incentives for Cultural Gifts

New tax incentives for gifting were announced by the Prime Minister on 26 March to take effect from 1 July 1999. The new incentives for cultural gifts will significantly reduce the after tax cost of giving a valuable item of property to a public library, public museum, public art gallery or Artbank. Cultural gifts now enjoy the most generous of tax incentives for gifting as they offer relief from Capital Gains Tax and a tax deduction for the current market value of the property donated.

However, taxpayers considering making a cultural gift in the near future are well advised to wait until at least 1 July 1999, or preferably until the legislation is passed later in the year, in order to gain these additional benefits.

Example

A collector purchased an antique in 1990 for	$1,000
The value in July 1999 is	$5,000
Their marginal tax rate is	48.5%

Compare the after tax cost/benefit of selling/donating the antique to a public museum.

Sale		Cultural Gift
Proceeds	$5,000	Tax deduction	$5,000
Capital gains tax	(1,700)	Capital gains tax	Nil
		Tax benefit @48.5%	$2,425
		Cost of the gift	$875
Net proceeds	$3,300		$3,300

Note that the after tax cost of making the gift is less than the original purchase price.

Benefits of Cultural Gift Incentives

The extent of the incentives for cultural gifts is further evident in the following points: -

They apply to property valued over $2 whereas the new incentives for gifts of property to other Public Funds such as charities or universities only apply to donations valued over $5,000.
Relief from capital gains tax will be available whereas property gifts to other Public Funds do not enjoy CGT relief.
The tax deduction is available at market value, generally determined as the average of 2 independent valuations.
For large gifts the deduction can be spread over a period of up to 5 years thus providing a tax benefit to offset income over years to come. This would overcome the problem associated with the fact that a gift deduction cannot create a carry forward tax loss.

Artists and Dealers

The benefit of relief from capital gains tax will not be relevant for gifts of trading stock by dealers or artists. The amount of tax deduction in this case would also be limited to the cost of the item of property. If the circumstances in the example above applied to a dealer then the Cost of the Gift would increase to $2,090.