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Edited version of your written advice
Authorisation Number: 1012892745416
Date of advice: 9 October 2015
Ruling
Subject: Monetary gift
Question
Will a one-off lump sum gift from a friend be considered as assessable income?
Answer
No.
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 shortly to be sent an amount of money.
You consider this to be a one-time gift.
The amount does not relate to any commercial activity.
It is not a loan.
It is not a trade of any kind.
It is a financial gift from a friend.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(2)
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources.
Ordinary income is defined in the ITAA 1997 as income according to ordinary concepts.
The courts have not applied a strict definition of income, but have traditionally identified a number of characteristics that provide the basis in determining whether a receipt is income.
The main characteristics that have been identified may include the receipt being:
• received periodically and regularly
• relied upon or expected
• earned, and
• for the replacement of income
Generally, a gift is regarded as a personal windfall gain or as the result of a domestic or personal arrangement and not as ordinary income unless you have received the money because of, in respect of, or in relation to any income-producing activity of yours.
A voluntary payment or gift which is properly characterised in the hands of the recipient, as a product or incident of employment or a reward for services (including for past services) is assessable income.
Taxation Ruling TR 2005/13 provides principles relevant to the determination of whether a transfer of money or property constitutes a gift. The term 'gift' is not defined in the ITAA 1997. Therefore, the word 'gift' takes its ordinary meaning. Rather than attempting to define a 'gift', the courts have described a gift as having the following characteristics and features:
• there is a transfer of the beneficial interest in property
• the transfer is made voluntarily
• the transfer arises by way of benefaction, and
• no material benefit or advantage is received by the giver by way of return
In your case, the lump sum payment was given to you voluntarily by your friend and not as a result of any commercial activity such as for services performed. As such, the money you will receive from your friend is considered to be a private or domestic arrangement.
As such, the money will not be included in your assessable income.