Private ruling: Assessable income
Date of advice: 6 August 2025
Published: 13 October 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Does the amount paid to you by your former employer form part of your taxable income under section 6-5(2) of the Income Tax Assessment Act 1997 ?' | A1: No. Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that assessable income includes ordinary income derived directly or indirectly from all sources. Ordinary income is income according to ordinary concepts namely, income from rendering personal services, income from property and income from carrying on a business. The personal gift, received from your ex-employer is not required to be reported in your income tax return. This amount has been paid to you after your ex-employer has closed and sold their business. Payments made and received as gifts are not required to be declared as they are generally not considered as part of your assessable income and, therefore, have no tax implications. However, any interest earned on these funds will need to be reported.

Relevant facts and circumstances: You met the business owner (ex-employer) several years ago, though a mutual friend before commencing work for them, your friendship developed over time. You worked with your ex-employer for a number of years. You became a close friend of your ex-employer. You were employed in the business. A couple of years ago the business was sold. In the same year as the sale of the business, you commenced a new employment arrangement with the new owner of the business. Your ex-employer retired after the sale of the business. In the year after the sale, your ex-employer received the funds from the settlement of the business sale and made a payment to your bank account. You have provided a letter from your ex-employer stating that: • This amount was a gift to thank you for the years of friendship, due to the close relationship you shared. • This relationship shared many ups and down. Your ex-employer had a serious illness, whilst you were dealing with a child with severe mental health issues. • The relationship was supportive at both work and personally. • This was a genuine way for the ex-employer to say thank you without obligation. • Your ex-employer made a pledge to themselves when they sold the business to give away a portion of the proceeds to those they care about and to charitable organisations. • The payment was initially a one-off gift; however, the ex-employer has decided to provide you with further funds. • In the year after the initial payment, you will receive another amount, upon the future and final receipt of the settlement funds. You have confirmed that: • The payment was made by direct deposit to your bank account. • The payment is not a claimable expense by the ex-employer in the reporting of the sale of the business to the Australian Taxation Office. • The first payment was transferred from one of several business accounts, the account was used to pay wages. • This is not a profit share type payment or agreement. • Your employer-employee relationship ended when the business was sold, the friendship has continued to this day. • You received the payment specifically due to the long-term friendship and support given by you. • No other former employees received any payments after the sale of the business, despite there being several other long-term employees. You were no longer employed by your ex-employer and already employed by the new employer before the first payment was made. You received an amount which represents a percentage of the total proceeds from the sale of the business. The new employer was willing to give you a fixed term contract with no probationary period. This contract complied with all current legislation and provided you and the other employees with more security. You worked for the new employer for several months post sale and then resigned.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 15-2