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Edited version of private advice
Authorisation Number: 1051629780837
Date of advice: 18 February 2020
Ruling
Subject: Assessable income
Question
Will a monetary amount received from Country Z registered company as a gift, be assessable income?
Answer
Yes.
This ruling applies for the following period:
Year ending 30 June 2020
The scheme commences on:
1 July 2019
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
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.
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