Gifted assets treated as assessable income

Gifted assets treated as assessable income


The Federal Court of Australia handed down an income tax decision in favour of the Commissioner of Taxation on 7 February 2019. Victoria Power Networks Pty Ltd v Commissioner of Taxation [2019] FCA 77

Correct income treatment

The dispute involved the correct income treatment for VPN of electricity connection work assets that were required to be either:

a.  constructed by customers and ‘gifted’ or transferred to the electricity distributor; or

b.  constructed by the distributor but paid for by the customer.

The Court held that in the case of (a) the Distribution Company was fully assessed on the value of the gifted connection asset and the value of that asset was the construction cost of the asset – not the value of the future revenue that that asset may be expected to generate (which was less than the construction cost).

In the case of (b) the Court held that the customer contributions to the distributor were ordinary income and therefore fully assessable.

Review asset transactions

Taxpayers should review any transactions involving gifted or transferred assets, or where seeking to argue the value of a non cash business benefit is different to an identifiable cost of the asset.

The decision is particularly relevant to taxpayers that are subject to, or dealing with others that are subject to, a sophisticated regulation framework.

Who should know this

This decision sets a precedent, and should alert Financial Controllers, Head of Tax and Tax specialists to carefully review contracts regarding gifted assets.

How we can help

ShineWing Australia can assist you review relevant contractual clauses to determine any exposure you may have.

Similarly, taxpayers that are required to ‘gift’ assets to these entities should review their treatment to ensure no inappropriate deductions are being claimed. You should be aware that the ATO’s view is that the cost of the gifted assets would not generally be deductible.

Matt Birrell

E [email protected]

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Tags: ATO, Income tax