Question

Lance has two adult children from a previous marriage. He has gifted them money for the past three years from his separate bank account and his wife has consented to split the gifts each year. Lance made gifts to his children as follows:

2016: Gifts of $60,000 to each child

2017: Gifts of $40,000 to each child

2018: Gifts of $50,000 to each child

1. What is the amount of Lance’s total taxable gifts?

Answer 1

Ø Gift iof isum iof imoney iand iother ivaluable iproperties iwas iused ias ia itool ito iconvert iblack imoney iinto iwhite imoney. iThe iFinance iAct, i2009 iintroduced iprovisions irelating ito itaxation iof igifts ivide iSection i56(2)(vii) iwef iOctober i1, i2009 ito iregulate ithe iconversion iof iblack imoney iinto iwhite imoney ivia ithe imedium iof igifts.

Ø Section i56(2)(vii) iwas iapplicable iwhere igifts iwere ireceived iby iindividuals/HUF. iGifts ireceived iby iany iother iperson iwere istill ikept iout iof ithe iambit iof iincome itax. iTo itax igifts ireceived iby iany iperson ion ior iafter

1st iApril i2017, ithe iFinance iAct, i2017 ihas iintroduced iSection i56(2)(x) iin iplace iof iSection i56(2)(vii). i

If ia iperson ireceives iany i‘sum iof imoney’ ifrom iany iother iperson iwithout iconsideration i(ie iin ithe iform iof ia igift), isuch isum iwould ibe itaxable ias ifollows:

Ø ❑ iIf ithe iaggregate ivalue iof isuch igifts ireceived iduring ithe irelevant iprevious iyear idoes inot iexceed iRs i50,000: iNo itax itreatment iin ithe ihands iof ithe irecipient.

Ø ❑ iIf ithe iaggregate ivalue iof isuch igifts ireceived iduring ithe irelevant iprevious iyear iexceeds iRs i50,000: iThe isum itotal iof iall ithe igifts ireceived iwould ibe itaxable iin ithe ihands iof irecipient iu/h i‘income ifrom iother isources’.

Note: iThe ilimit iof iRs i50,000 iwould iapply ito ithe iaggregate ivalue iof iall igifts ireceived iduring ithe iyear iand inot iindividually ifor ieach igift. i

Meaning iof i‘Sum iof iMoney’

The iphrase i‘sum iof imoney’ ihas ito ibe iunderstood ias iany iform iof imoney isuch ias icash, icheque, idraft, ietc.

· Gifts iare inot itaxable iin ithe ifollowing isituations i(ie iin ithe ifollowing icases, ithe iprovisions ialready idiscussed iwould inot iapply):

· ❑ iGifts ireceived ifrom iany irelative iare inot itaxable iat iall.

· ❑ iGifts ireceived iby ian iindividual ion ithe ioccasion iof ihis imarriage ifrom irelatives/non-relatives iare inot itaxable. i(Gifts ireceived iby ithe iparents iof ithe iindividual ion ithe ioccasion iof ithe imarriage iof ithe iindividual iare itaxable iin ithe ihands iof ithe iparents. iFurther, igifts ireceived ion imarriage ianniversary iare ialso itaxable.)

· ❑ iGifts ireceived iunder ia iwill ior iby iway iof iinheritance iare inot itaxable.

· ❑ iGifts ireceived iin icontemplation iof ithe ideath iof ithe idonor ior ipayer i(contemplation iof ideath irefers ito ia isituation iwhere ia iperson istarts ibelieving ithat ihe iwould idie iin ithe iimmediate ifuture idue ito ia iparticular iillness, ietc).

· ❑ iGifts ireceived ifrom iany iapproved ilocal iauthority, iapproved icharitable iinstitution, iapproved icharitable itrust, iapproved icharitable ihospital, iapproved iuniversity ietc.

· ❑ iGift iof iproperty iin iconnection iwith iamalgamation/demerger iof icertain icompanies.

· ❑ iAny iother isituation iprescribed iu/s i56(2)(x).

Meaning iof‘Relative’

❑ iIn icase iof iIndividual:

Spouse iof ithe iindividual;

Brother ior isister iof ithe iindividual;

Brother ior isister iof ithe ispouse iof ithe iindividual;

Brother ior isister iof ieither iof ithe iparents iof ithe iindividual;

any ilineal iascendant ior idescendant iof ithe iindividual i(ascendant irefers ito imother/ ifather/grandmother/grandfather i& iso ion; idescendant irefers ito ison/daughter/ igrandson/granddaughter i& iso ion);

any ilineal iascendant ior idescendant iof ithe ispouse iof ithe iindividual; iand

spouse iof ithe iperson ireferred ito iin iitems i(b) ito i(f).

❑ iIn icase iof iHUF:

Gifts ireceived iby iHUF ifrom iany iof iits imembers iare inot itaxable iin ithe ihands iof iHUF ibecause ifor ia iHUF, iall iits imembers iare itreated ias irelatives.

In ithis icase iLance ihas i2 iadult ichildren iprevious imarriage. iso igift ireceived ifrom irelative iis inot itaxable iunder ilaw.

The idonor iis iprimarily iliable ifor ithe igift itax. iIf ithe idonor ifails ito ipay ithe igift itax, ithen ithe idonee iwill ibe iresponsible ifor ithat itax.

iIf ithe idonor, iCathy, ifails ito ipay ithe igift itax, ithen ithe idonee, itwo iadult ichildren, iwill ibe iliable ifor ithe ipayment.