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Edited version of private advice
Authorisation Number: 1012649533255
Ruling
Subject: Government grant
Question 1
Are you required to include the grant in your assessable income?
Answer
No.
Question 2
If not, does the grant reduce the cost base of the asset for capital gains tax (CGT) purposes?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2013
The scheme commences on
1 July 2012
Relevant facts and circumstances
You and your spouse received a grant.
The payment was made to assist with the purchase of an investment property.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 20-20
Income Tax Assessment Act 1997 subsection 110-45(3)
Reasons for decision
Question 1
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 during the income year.
Ordinary income is income according to ordinary concepts and is generally considered to include:
• amounts received in return for personal services, whether received in the capacity of an employee or otherwise; and
• amounts received periodically or regularly and which the recipient relies on for the maintenance of themselves and /or their dependants (Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 541).
You and your spouse received a payment from a government agency. The primary purpose of the grant is to provide financial assistance to people purchasing or building a new home.
The grant was not paid because of employment, services rendered, investment or the operation of a business. The grant was received as a one off lump sum payment and the motive of the body making the payment is to provide assistance for the purchase of a new home, not to help the recipients or their dependants pay for their regular living expenses.
The grant is not income according to ordinary concepts and therefore is not ordinary income. Accordingly, the grant will not form part of you or your spouse's assessable income under section 6-5 of the ITAA 1997.
Question 2
An amount paid in respect of acquiring a capital gains tax (CGT) asset, such as a property, forms part of the first element of the cost base of that CGT asset.
Subsection 110-45(3) of the ITAA 1997 provides that expenditure does not form part of any element of the cost base to the extent of any amount you have received as recoupment of it, except so far as the amount is included in your assessable income.
Recoupment is defined in section 20-25 of the ITAA 1997 to include a grant in respect of a loss or outgoing.
The grant received is considered to be in respect of the outgoing incurred to purchase a new home and is thus, to the extent of the amount of the grant, a recoupment of that expenditure for the purposes of subsection 110-45(3) of the ITAA 1997.
As the grant is not ordinary income (as discussed above) it is not included in assessable income.
Therefore, expenditure to purchase the home does not form part of any element of the cost base of the property to the extent of the amount of the grant.