Edited version of private ruling

Authorisation Number: 1011370948576

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Ruling

Subject: gifts

Question 1

Will a lump sum gift from your parent be assessable?

Answer

No.

Question 2

Will a periodical gift of money from your parent be assessable?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009.

The scheme that is the subject of the ruling:

You and your spouse are wishing to purchase a house.

Your parent would like to give you some money to assist you in the purchase of the house.

Your parent is considering either a lump sum gift or a periodical gift on a monthly basis to help you pay the loan off.

You are considering renting out a room in your house to help with the payments of the loan.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-5(2)

Explanation: (this does not form part of the ruling)

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.

Ordinary income is defined in the ITAA 1997 as income according to ordinary concepts.

The courts have not applied a strict definition of income, but have traditionally identified a number of characteristics that provide the basis in determining whether a receipt is income.

The main characteristics that have been identified may include the receipt being:

· received periodically and regularly

· relied upon or expected

· earned, and

· for the replacement of income.

Generally, a gift is regarded as a personal windfall gain or as the result of a domestic or personal arrangement and not as ordinary income unless you have received the money because of, in respect of, or in relation to any income-producing activity of yours.

A voluntary payment or gift which is properly characterised in the hands of the recipient, as a product or incident of employment or a reward for services (including for past services) is assessable income.

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.

In your case, the payment the lump sum payment and the periodical payment from your parent is considered to be given to you voluntarily for personal reasons only and not as a result of any services performed. As such, the money you will receive from your parent is considered to be a private or domestic arrangement.

The way you use the property will not change the nature of the funds provided by your parent.

Therefore, the money will not be included in your assessable income.