Private ruling: Gifting, rental property deductions and bank deposits
Published: May 2013
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Questions and answers: | 1. Are you assessable on an amount that you have gifted to your sibling? | No. | 2. Are you entitled to a capital works deduction in regards to your rental property? | No. | 3. Are you entitled to a deduction for the decline of value of your rental property? | No. | 4. Are the deposits made by you into your bank account assessable? | No.


Relevant legislative provisions: Income Tax Assessment Act 1997, Section 6-5 | Income Tax Assessment Act 1997, Section 6-10 | Income Tax Assessment Act 1997, Division 43 | Income Tax Assessment Act 1997, Division 40

Reasons for decision: Detailed Reasoning - Gifting: The assessable income of a taxpayer includes payments that are received by a taxpayer which are subject to the provisions outlined under section 6-5 of the ITAA 1997 and section 6-10 of the ITAA 1997. In your case, you have gifted your sibling an amount of money. As you are not the recipient of this payment, the payment is not assessable to you. Accordingly, the payment made by you is not assessable to you under section 6-5 of the ITAA 1997 or section 6-10 of the ITAA 1997. | Detailed Reasoning - Capital works: Division 43 of the ITAA 1997 provides a deduction for construction expenditure on capital works that are buildings or structural improvements and to extensions, alterations or improvements to those buildings or structural improvements used for residential accommodation if the construction of the capital works commenced after 17 July 1985 and the capital works are used to produce assessable income. As your rental property was constructed before 17 July 1985 and there have been no substantial renovations undertaken post 17 July 1985, you are not entitled to a deduction for a capital works deduction under Division 43 of the ITAA 1997. | Detailed Reasoning - Decline in Value: Division 40 of the ITAA 1997 contains the rules for the uniform capital allowance system which applies to most depreciating assets, including plant. Broadly speaking, Division 40 of the ITAA 1997 provides a deduction for the decline in value of depreciating assets. Division 40 of the ITAA 1997 generally allows a deduction for the cost of a depreciating asset based on its effective life. However, Division 40 of the ITAA 1997 does not apply to capital works for which a deduction is available under Division 43 of the ITAA 1997 or would be available under Division 43 of the ITAA 1997 but for the capital works being started before a particular day or used for a relevant purpose. The construction of the two dwellings of your rental property commenced prior to 17 July 1985. As you are not entitled to a capital works deduction due to the fact that construction occurred prior to 17 July 1985 you are not entitled to a deduction under Division 40 of the ITAA 1997. Accordingly you are not entitled to a deduction for the decline of value of your rental property under Division 40 of the ITAA 1997. | Detailed Reasoning - Assessability of bank deposits: When a taxpayer receives a monetary amount, it is at the point of receipt that the taxpayer must determine whether the amount received will be assessable under section 6-5 of the ITAA 1997 or section 6-10 of the ITAA 1997. Once it is determined whether or not the amount will be assessable, the taxpayer is then required to take the appropriate lodgement action. Once a taxpayer has taken the appropriate lodgement action, if they deposit the money into a bank account, this action will not make the deposited amount assessable once again. However any interest that is derived from the deposited amount is assessable as ordinary income under section 6-5 of the ITAA 1997. In your case, you have made deposits into various bank accounts. The amounts deposited have already been subject to tax if assessable, merely depositing them into a bank account will not make the deposit assessable. Accordingly, the deposits made into your bank accounts are not assessable, under section 6-5 of the ITAA 1997 or section 6-10 of the ITAA 1997.

Relevant facts: You made a payment to your sibling and their spouse as a gift. | The payment was made with no consideration, and you have received no benefit from this payment. | The property has been used as an investment property and has earned assessable income. | The dwelling and garage situated on the property were built prior to July 1985. | There have been no substantial renovations undertaken on the property. | You have a number of bank accounts in which you have made a number of deposits. | The deposits have already been subject to tax where applicable on receipt.