Private ruling: Assessable Income
Published: June 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you required to include the grant in your assessable income? | A1: No. | Q2: If not, does the grant reduce the cost base of the asset for capital gains tax (CGT) purposes? | A2: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 20-20 | Income Tax Assessment Act 1997 subsection 110-45(3)

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. Ordinary income is income according to ordinary concepts and is generally considered to include: • amounts received in return for personal services, whether received in the capacity of an employee or otherwise; and • amounts received periodically or regularly and which the recipient relies on for the maintenance of themselves and /or their dependants ( Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 541). You received a payment from the government. The primary purpose of the grant is to provide financial assistance to people purchasing or building a new home, thereby boosting the building industry. The grant was not paid because of employment, services rendered, investment or the operation of a business. The grant was received as a one off lump sum payment and the motive of the body making the payment is to provide assistance for the purchase of a new home, not to help the recipients or their dependants pay for their regular living expenses. The grant is not income according to ordinary concepts and therefore is not ordinary income. Accordingly, the Grant will not form part of your assessable income under section 6-5 of the ITAA 1997. An amount paid in respect of acquiring a capital gains tax (CGT) asset, such as a property, forms part of the first element of the cost base of that CGT asset. Subsection 110-45(3) of the ITAA 1997 provides that expenditure does not form part of any element of the cost base to the extent of any amount you have received as recoupment of it, except so far as the amount is included in your assessable income. Recoupment is defined in section 20-25 of the ITAA 1997 to include a grant in respect of a loss or outgoing. The grant received is considered to be in respect of the outgoing incurred to purchase a new home and is thus, to the extent of the amount of the grant, a recoupment of that expenditure for the purposes of subsection 110-45(3) of the ITAA 1997. As the grant is not ordinary income (as discussed above) it is not included in assessable income. Therefore, expenditure to purchase the home does not form part of any element of the cost base of the property to the extent of the amount of the grant.

Relevant facts: You received a construction grant of X from the government in relation to the construction of the property. | The grant is available to new home buyers and owner builders.