Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1013013092851

Date of advice: 13 May 2016

Ruling

Subject: Assessability of gift of money

Question

Is the money you received as a gift for the hard work and support over the years from a previous Executive Director of a Company for whom you were employed considered assessable income?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 2016

The scheme commenced on:

1 July 2015

Relevant facts and circumstances

You are a resident of Australia for taxation purposes.

You are the Managing Director of The Company ('the Company). Parent Company is the parent company of The Company. Executive Chairman was the founder and Executive Chairman of parent Company

Executive Chairman sold The Company as part of the parent Company to Purchaser in 20XX. Your role has not changed and you are now accountable to the management of Purchaser. You have an employment contract and receive remuneration directly related to your job functions from Purchaser.

Your responsibility when employed by the Company with Executive Chairman as Executive Chairman was to grow the business and for the completion of these responsibilities you were compensated by way of a salary and commission plan.

By way of gratitude for the work and loyalty that you provided to Executive Chairman over the years he has gifted you $xxx xxx as a one-off personal gift.

Executive Chairman has advised that there is no obligation on you to themselves or to the Company for the voluntary payment.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10 and

Income Tax Assessment Act 1997 Section 15-2

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

A gift will be assessable income if it is:

Under subsection 6-5(1) of the ITAA 1997, ordinary income means income 'according to ordinary concepts'.

Generally, a gift is regarded as a personal windfall gain and not as ordinary income unless the taxpayer has received the gift because of, in respect of, or in relation to any income-producing activity of the taxpayer.

Taxation Ruling IT 2674 provides guidelines for determining whether gifts received by church workers (including missionaries and ministers of religion) are assessable income. Whilst you are not a church worker, the principles contained within the ruling can be applied to your situation.

IT 2674 explains that the following factors need to be taken into account in determining if a gift is assessable income:

Paragraph 28 of IT 2674 states gifts received by a church worker are assessable income if:

A gift received in the above circumstances is assessable income even if the donor is not under a legal obligation to make the gift or the gift comes, not from the employer, but from somebody else.

Under section 6-10 of the ITAA 1997 assessable income also includes statutory income. Statutory income is amounts that are not ordinary income but are included as assessable income by provisions of the tax law.

Subsection 15-2(1) of the ITAA 1997 provides that the value to the taxpayer of all gratuities and benefits given or granted to them in respect to, or for, or in relation directly, or indirectly to, any employment will be included in their assessable income.

There must be a connection between the payment and the employment. The receipt must be a product of the employment.

Taxation Ruling TR 2005/16 deals with the question of whether a payment of salary, wages, commission, bonuses or allowances has been made to an individual as an employee, of that or another entity. In particular, paragraph 64 states:

Paragraph 66 TR 2005/16 states:

In your case the relevant payment is being made to you as a consequence of the relationship that has developed over a number of years as an employee of the Company founded by Executive Chairman. In their email to you Executive Chairman has stated that the gift to you is by way of gratitude for the work and loyalty you have provided to them over the years.

Applying the principles contained in IT 2674 and TR 2005/6 it is considered that you received the payment as a result of your employment relationship with The Company and its founder, Executive Chairman. The fact that Xxx indicated that the payment is a gift and their motive behind the gift is based on gratitude does not alter this conclusion. Consequently the payment is assessable income under s6-5 of the ITAA97.

ATO view documents

Taxation ruling IT2674.

Taxation ruling 2005/16

Other references (non ATO view, such as court cases)

Federal Commissioner of Taxation v Dixon 55 (1952) 86 CLR 540; 26 ALJ 505; 10 ATD 82


Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).