Private ruling: Gifts and voluntary payments
Date of advice: 17 August 2017
Published: January 2018
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Will the payment be considered ordinary income under subsection 6-5(1) of the Income Tax Assessment Act 1997 and therefore assessable? | A1: No. | Q2: Will the payment be considered statutory income under section 15-2 of the Income Tax Assessment Act 1997 and therefore assessable? | A2: No. | Q3: Will the payment be considered a capital gain and therefore assessable under section 102-20 of the Income Tax Assessment Act 1997 ? | A3: No.

Relevant facts and circumstances: You are an Australian resident. You received a payment from the Grantor. You met the Grantor when you were employed at Company Y. You are currently employed by Company X as the Managing Director. The parent entity of Company X is Company Z which is an overseas entity. Company Z was founded by the Grantor. Outside of your employment relationship you are involved with the Grantor in social activities such as personal catchups, tennis games and family dinners. You have exchanged birthday gifts with the Grantor. The Grantor has invited you and your family to stay at their properties. In 2016, another company acquired 65% of the shares in Company Z. This resulted in the Grantor receiving a significant amount of money. The Grantor made personal payments to some (but not all) employees of Company X and Company Z. The payment was made by a deed of gift. ● The deed states that the “Grantor confirms that the payment of the Monies to the Grantee is not in any way related to the Grantee’s employment with Company X of which the Grantor is a minority shareholder” The payment of cash was transferred to the taxpayer’s bank account You intend to keep working for your present employer for the foreseeable future.

Relevant legislative provisions: Section 6-5 Income Tax Assessment Act 1997 | Section 15-2 Income Tax Assessment Act 1997 | Section 102-20 Income Tax Assessment Act 1997

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Taxation Ruling TR 2005/13 provides principles relevant to the determination of whether a transfer of money or property constitutes a gift. The term 'gift' is not defined in the ITAA 1997. Therefore, the word 'gift' takes its ordinary meaning. Rather than attempting to define a 'gift', the courts have described a gift as having the following characteristics and features: ● There is a transfer of the beneficial interest in property ● The transfer is made voluntarily ● The transfer arises by way of benefaction, and ● No material benefit or advantage is received by the giver by way of return. Taxation Ruling IT 2674 examines whether gifts or voluntary payments received by church workers are assessable income. These principles are no different from those which apply in determining whether gifts received by taxpayers in other callings or occupations are assessable income. Whether a gift is assessable income depends on the character of the gift in the hands of the recipient. Consideration is necessary of the whole of the circumstances in which the gift is received. For example, the following factors need to be taken into account: ● How, in what capacity, and for what reason the recipient received the gift; and ● Whether the gift is of a kind which is a common incident of the recipient's calling or occupation; and ● Whether the gift is made voluntarily; and ● Whether the gift is solicited; and ● If the gift can be traced to gratitude engendered by some service rendered by the recipient to the donor, whether the recipient had already been remunerated fully for that service; and ● The motive of the donor (but it is seldom, if ever, decisive); and ● Whether the recipient relies on the gift for regular maintenance of himself or herself and any dependants. A personal gift received by you for personal reasons, where there is no connection between the receipt of the gift and any income-producing activity by you, is not assessable income. Nor is a gift assessable income if it is referable exclusively to the attitude of the donor personally to you. | Detailed Reasoning - Question 1: In your situation you have had a previous employment relationship with the Grantor with them being the owner of the parent company of your present employer. However your initial meeting was made outside of your employment relationship. You developed a friendship with the Grantor that includes participating in social activities together outside of work. Similar payments to yours were not made to all employees in the various companies but only a select few in who the Grantor deemed to be “close friends”. It was stated in the Deed of Gift that the payment was made regardless of your previous employment relationship. The overall circumstances in which you received the payment leads to a conclusion that this was a gift made voluntarily to you. It does not have sufficient link to services rendered by yourself from the Grantor and was made without solicitation on your behalf. There is no material benefit gained by the Grantor from making this payment to you. The payment was given to you for personal reasons and is therefore non-assessable. | Detailed Reasoning - Question 2: The payment will also not be considered to be statutory income for the purposes of section 15-2 of the ITAA 1997. This is due to the same reasons as discussed in the answer to question 1, being that the payment was given outside the employment relationship for personal reasons. | Detailed Reasoning - Question 3: You have not disposed of the income given to you; therefore there has been no CGT event. None of the CGT events are applicable to your situation. There will be no capital gain on the income you have received.