Edited version of private advice

Authorisation Number: 1052101641269

Date of advice: 29 March 2023

Ruling

Subject: Income - gift payment

Question 1

Will the gift of cash you received constitute ordinary assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Will the gift of cash you received constitute statutory assessable income under section 6-10, specifically under section 15-2 of the ITAA 1997?

Answer

No.

This ruling applies for the following period:

Income year ended 30 June 20YY

The scheme commenced on:

XX April 20YY

Relevant facts and circumstances

You were employed by the Company from XX June 20YY until XX June 20YY.

You and the family trust you control acquired shares in the Company.

Over the past XX years you formed a close personal friendship with the (now former) CEO. You regularly catch up with them however the former CEO is not a related party or associate of yours.

On XX April 20YY, the former CEO decided to give $XXX,XXX USD to you as a token of appreciation and gratitude to the personal support and assistance you gave over the years.

The former CEO was no longer associated with the Company at the time of making the gift to you and you were no longer working for the Company.

You have not been employed by or provided consulting services to the former CEO of the Company.

There was no obligation on the part of the former CEO to make the gift, it was a voluntary payment and given to you as a one-off amount.

You had no ability to influence the amount of the payment being made.

The gift was unsolicited and there is no consideration passing from you to the former CEO for the payment. The gift was a no strings attached payment and you are not required to do anything to receive it.

The gift is unrelated to your past employment with the Company.

The gift is unrelated to the shares you and your family trust hold in the Company.

As far as you know, no other former employees or investors of the Company are being gifted an amount from the former CEO. The payment is being made to you as you are a very close friend.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 15-2

Reasons for Decision

Summary

The amount you receive will be considered a gift and will not be considered assessable income under sections 6-5, 6-10 and 15-2 of the ITAA 1997.

Detailed reasoning

Section 6-5(2) of the ITAA 1997provides that the assessable income of a taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

Section 6-10(2) of the ITAA 1997 provides that assessable income also includes statutory income. Statutory income includes amounts that are not ordinary income but are included as assessable income under the tax law.

Section 15-2(1) of the ITAA 1997 provides that assessable income includes allowances provided in relation to any employment or services rendered.

There are general principles to consider when working out whether amounts of money are a gift or assessable income. Taxation Ruling TR 2005/13 - Income tax: tax deductible gifts - what is a gift? sets out what the essential elements of a gift are. The TR 2005/13 states that the word 'gift' has its ordinary meaning and outlines that gifts generally have the following features:

a)    there is a transfer of the beneficial interest in property

b)    the transfer is made voluntarily

c)    the transfer arises by way of benefaction, and

d)    no material benefit or advantage is received by the giver by way of return.

Generally, a gift is not considered to be assessable income unless there is a connection to the income producing activity of the person who will be gifting. In IT 2674, the ruling states that whether a gift will be assessable income depends on the quality of the character of the gift in the hands of the recipient. The factors outlined include 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. Although the motive of the donor is a consideration, it is rarely held to be a decisive factor.

Application to your situation

In your situation, you have a previous employment relationship with the former CEO, as you were previously working for the company for which they were CEO. However, you have also stated that you have built a personal relationship with them over an extended period. When the payment was made, you were no longer employed by the company, nor was the former CEO, that you previously worked for.

In your situation, the gift of cash has the following features:

a)    there was a transfer of the beneficial interest in property - you received a gift of money.

b)    the transfer was made voluntarily - in the private ruling application, it is stated that you and the former CEO formed a close personal friendship. In the application it is also stated that you have provided to the former CEO a timely helping hand, steadfast support and good counsel. The gift being given to you is in recognition for personal support and assistance over the years.

c)    the transfer arises by way of benefaction - you have a previous employment relationship with the former CEO as well as forming a close personal friendship and therefore having known each other for a few years.

d)    no material benefit or advantage is received by the giver by way of return - you were not required to carry out any services or provide any benefit to the former CEO.

After considering all the relevant facts and circumstances, the Commissioner considers that the payment will be given to you for personal reasons and is therefore a gift and is non-assessable.

Factors that lead to this decision include:

a)    the payment is at the discretion of the giver

b)    the payment is not expected, relied upon or a common incident of your occupation

c)    the payment is being given voluntarily to you.

Although there is a previous employment relationship, the overall circumstances in which you may receive the payment leads to a conclusion that this will be a gift made voluntarily to you. The amount you receive will be considered a gift and will not constitute assessable income for you under sections 6-5, 6-10 or 15-2 of the ITAA 1997.

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