Court: "Money exchanged within family is subject to gift tax without supporting documents"

Even money lent to family members and then received back can be subject to gift tax if there is no supporting documentation, according to a court ruling.

Seoul Administrative Court.

On the 1st, the legal community reported that the Seoul Administrative Court, Administrative Division 5 (Presiding Judge Kim Sun-yeol) ruled against Mr. A in a lawsuit he filed against the Nowon Tax Office seeking cancellation of a gift tax imposition.

Mr. A’s older sister, Ms. B, had 49 million KRW deposited into her account in February 2018, and about two weeks later, she transferred 50 million KRW to Mr. A. The tax authorities regarded this as a gift of 50 million KRW from Ms. B to Mr. A and decided and notified a gift tax of 6.35 million KRW in September 2022. Mr. A filed an administrative lawsuit claiming, “The money received was repayment of a loan I gave to Ms. B, so it is not subject to gift tax.”

However, the court did not accept Mr. A’s argument. The court stated, “Mr. A transferred a considerable amount of money in cash but left no objective evidence such as a loan contract, IOU, or receipt,” adding, “This is unusual even considering the personal relationship with Ms. B.”

Furthermore, the court pointed out, “Ms. B kept the 49 million KRW in cash in her account and paid it to Mr. A in less than two weeks, but Mr. A could not specifically explain the circumstances or motive behind Ms. B borrowing the money.”

In addition, the court judged, “At the time in February 2018, Mr. A was on leave and did not regularly go to work or receive a salary, so it is unlikely he had a large amount of cash on hand,” and “Considering the value of Ms. B’s inherited property and rental income, it cannot be concluded that Ms. B lacked the assets and income to gift the money to Mr. A.”