Private ruling: Assessable income
Date of advice: 18 February 2020
Published: March 2020
Ruling period: Year ending 30 June 2020
Date scheme commenced: 1 July 2019

Ruling: Q1: Will a monetary amount received from Country Z registered company as a gift, be assessable income? | A1: Yes.

Relevant facts and circumstances: Your relative is affiliated with a foreign company. The company has offered to give you $X, to help with the purchase of a residential property. The property will be for your private use and not used for generating income. The money is offered as a gift and you will not be required to repay the money in any way and the company does not intend to file a lien against the property.

Relevant legislative provisions: Division 7A of Part III of the Income Tax Assessment Act 1936 | Income Tax Assessment Act 1936 section 109BC

Reasons for decision: Summary: Division 7A of the Income Tax Assessment Act 1936 (ITAA 1936) is an integrity measure aimed at preventing private companies from making tax-free distributions of profits to shareholders (or their associates). A payment or other benefit provided by a private company to a shareholder or their associate can be treated as a dividend for income tax purposes under Division 7A even if the participants treat it as some other form of transaction such as a loan, advance, gift or writing off a debt. Specifically, a private company is taken to have paid a dividend to an entity under section 109C of the ITAA 1936 if the company has made a payment, or loan to, or forgiven the debt of, an entity in an income year and in that year either: a) the payment is made when the entity is a shareholder in the private company or an associate of such a shareholder; or b) a reasonable person would conclude (having regard to all the circumstances) that the payment is made because the entity has been such a shareholder or associate at some time. Section 318(1)(a) of the ITAA 1936 provides that an associate of an entity includes a relative of the entity. Section 109BC of the ITAA 1936 applies where a company is a resident of a foreign country and states that where there are references to a year of income in Division 7A, these are references to a tax accounting period in relation to the company and the foreign tax imposed by that foreign country. In your case, the company is a Country Z registered company who has made an offer to pay you $X and during the relevant period your relative was affiliated with the company. The payment will therefore be deemed to be a dividend and be assessable income in the year of receipt.