Private ruling: Assessability of a lump sum
Date of advice: 26 November 2015
Published: February 2016
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Question and answer | Will receipt of the foreign lump sum paid to you as a gift constitute assessable income for Australian income tax purposes? | No.

Relevant facts and circumstances: You are a citizen of Australia and a resident of Australia for tax purposes. Your spouse is a foreign resident and owns a business in a foreign country. The business has no connection to Australia and you have no involvement with the business. Your spouse intends to sell the business and give you a lump sum amount from the sale proceeds as a gift.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 6-10

Reasons for decision: Summary: The assessable income of a resident taxpayer includes income according to ordinary concepts (ordinary income) and amounts that are included in assessable income by legislative provisions about assessable income (statutory income) derived from all sources during an income year. Receipt of a lump sum payment may give rise to a capital gain (statutory income); however, the receipt of a gift does not give rise to a capital gain and is not assessable under the capital gains tax provisions. Ordinary income has generally been held to include three categories, namely income from rendering personal services, income from property and income from carrying on a business. Other characteristics of income include receipts that are earned, are expected, are relied upon and have an element of periodicity, recurrence or regularity. The receipt of an unsolicited one-off gift does not have any of the characteristics of ordinary income and would generally only be assessable should it relate in some way to the income earning activities of the recipient. In your case, you are going to receive a one off lump sum payment from your spouse as a gift. Although, the lump sum will be derived from the sale of a business, you have no connection with the business yourself. Therefore, from the information provided, the lump sum amount will not be assessable as ordinary income.