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Edited version of your written advice
Authorisation Number: 1012766350990
Ruling
Subject: Gifts
Question
Will the payment from your parents be assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No
This ruling applies for the following period:
Income year ended 30 June 2015
The scheme commences on:
1 July 2014
Relevant facts and circumstances
Your new house is due to settle on x.
The balance owed at settlement is $x.
You parents have access to their superannuation and have also recently sold their house.
They have offered to give you $x towards the purchase of your new home.
The amount of $x will be paid before the settlement date.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer's assessable income includes 'income according to ordinary concepts, which is called ordinary income'. However, 'ordinary income' is not defined in the legislation. It is therefore necessary to look to the courts for guidance on what constitutes 'ordinary income'.
In determining whether an amount is ordinary income, the courts have established the following principles:
• what receipts ought to be treated as income must be determined in accordance with ordinary concepts and usages of mankind, except in so far as a statute dictates otherwise
• whether the payment received is income depends upon a close examination of all relevant circumstances, and
• whether the payment received is income is an objective test.
Relevant factors in determining whether a payment is ordinary income include:
• whether the payment is the product of any employment, services rendered, or any business
• whether the payment is expected and relied upon
• the character of the payment in the hands of the recipient
• whether the payment is received as a lump sum or periodically, and
• the motive of the person making the payment, although this is rarely decisive by itself.
A personal gift received by an individual from family members, not related to any income-producing activity on the part of the individual, is not assessable income under section 6-5 of the ITAA 1997. A gift received by an individual from his or her parents or other close relatives out of natural love and affection is not assessable income in the individual's hands. Therefore, you are not assessable on money gifted to you by your parents.