What’s the difference between a “gift” and “income”?

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‘Tis the season for gift giving – and the ATO has recently issued an alert on gifts or loans from overseas.

Their main focus is to crack down on schemes and arrangements that are designed specifically to circumvent Australian tax laws. In general, Australian-resident taxpayers need to declare their worldwide income in their Australian tax return. So, some people try and disguise offshore capital gains or income as a gift or loan.

What is a gift? (According to the ATO)

  • There is a transfer of money or property
  • The transfer is made voluntarily
  • The donor does not expect anything in return for the gift
  • The donor does not materially benefit from the gift.

If the donor (in this case, you) benefits from the donation, it may still be tax-deductible as a contribution.

How does the ATO tell the difference?

Generally, the ATO will expect to see some form of evidence that the gift is genuine. This could take many forms, such as a deed of gift prepared by the donor, formal identification of the donor, a copy of the donor’s bank account, or in the case of an inheritance, the will or distribution statement from the Estate.

If you have received a loan from overseas, the ATO will expect to see properly executed loan documentation, and other documentation supporting why the loan was made and its purpose. Third party documentation is best as documentation from a family member may not be accepted as conclusive evidence of a loan.

If you’re not sure if money you’re receiving is considered a gift, a loan, or income (regardless of whether or not it comes from overseas) – the best course of action is to speak to your accountant!