Let’s face it, everyone likes to give a gift to a loved one now and then. From some dollars in a birthday card, to a car for your son or daughter – the possibilities are endless. However, depending on the type of gift, and more specifically, to whom the gift is made, the tax implications of gift giving differ. And despite the fact that we’ve managed to ruin the party by mentioning tax in the same sentence as gifts, it’s important to know where you stand and the ATO rules. In this article we look at gifting money to family members tax free and the implications for both parties, read on for more.
Gift giving to a family member – Cash, Shares, Property & More
Gifting to your children or grandchildren is quite common in Australia and whether undertaken at the end of life or simply because you want the next generation to benefit from your hard work, passing on your wealth to family members can be an important part of your life plan.
If you are simply giving cash to a family member, there are no tax implications for either the giver or the receiver of the gift. As long as the gift is made for personal reasons, and it is not connected to the giver’s income-producing activities, neither party will be taxed.
However, if interest is earned from that gift, or an income is generated, as with a property that you rent out, the interest or income is considered taxable and will need to be included in a tax return.
Unsurprisingly, cash is one of the most popular gifts given to family members, followed by assets – the most common of which are:
- Cars
- Shares
- Property (such as land or buildings)
Except for cars, which are exempt from Capital Gains Tax (CGT), if you gift a family member shares or property CGT rules will most likely apply.
Capital Gains Tax & Gifts
If you decide to give shares or property as a gift to a family member, the giver will be subject to CGT on the disposal – and if gifting to children (or other family members), the asset will be deemed to have been disposed of at its market value, which could trigger a hefty CGT bill.
And while there are no immediate tax consequences for the receiver of the gift – they would be deemed to have acquired the gift at market value – they are subject to CGT when they ultimately sell the asset.
Also, any income (such as interest or dividends) the recipient earns on the gifted money or asset (such as interest on a cash gift deposited into a bank, or dividends on gifted shares) will be assessable income to them, and would need to be included in their tax return.
Are there tax concessions?
Depending on the asset being gifted some tax concessions are likely to apply.
Property
If you decide to pass on the property you live in, you may be able to use the main residence exemption to reduce or eliminate your CGT bill.
Shares
If you pass on shares in a private company, there are a number of CGT concessions that could substantially reduce or completely eliminate any CGT bill. However, Small business CGT concessions come with many conditions, so be sure to take professional advice before taking any action. Our expert accountants at POP can assist you with any enquiries you may have, get in touch!
Gifting when receiving an Age pension / Centrelink benefits
If you’re thinking of gifting some of your assets or retirement savings, there are some things you should be aware of that gifting affects, things like the Age Pension and other Centrelink benefits.
While you can gift or transfer assets for any value you choose, if you gift within certain government limits you could actually increase the amount of benefit you receive. For example, if you are a ‘part age pensioner’ and affected by the asset test, gifting can be a way of reducing your assets and gaining a slightly higher Age Pension payment.
However, if you exceed the government’s allowable gifting amount, your rate of pension or allowance may be negatively affected.
Before you make any decisions, it’s always best to consult an accountant or financial advisor to ensure that your gift will have a positive impact on your financial position.
Some examples of gifting for Centrelink purposes include:
- Transferring an asset for less than its market value. The difference between the market value and the amount received for the asset can be seen as a gift by Centrelink.
- Putting money into a family trust that you or your partner do not control.
- Paying school fees for grandchildren.
- Giving money for the purposes of a loan.
If your gift is classed as one of the above and you receive Centrelink benefits you must inform them within 14 days of gifting.
Wills & Gifts
For most of us a Will is used to determine how our assets are distributed when we die. However, depending on your circumstances (for example if you have a terminal illness), it could be worthwhile transferring some assets before death.
For instance, if you’ve previously sold some assets at a loss and have capital losses available, you could transfer CGT assets to your children now and use the capital losses to shelter the capital gains – in essence, you get to transfer the assets tax-free while enabling the recipient to acquire the assets for market value (as a result of a lifetime transfer), rather than at your original purchase cost – the figure that will be used – if they inherit the asset on your death. This approach means the person who receives the gift will ultimately get a lower CGT bill when they sell the asset.
Expert Advice for Managing Tax
While gifting money to family members tax free in Australia is straightforward, other assets are liable to tax implications for both you and the gift receiver. If you need help, the team at POP Business can provide expert advice on gifting, capital gains tax and much more. Call us to find out more today – 1300 180 630.
