Let’s be honest, everyone enjoys surprising their loved ones with a thoughtful gift from time to time. Whether it’s a few dollars tucked into a birthday card or a grand gesture like gifting a car to your son or daughter, the options are limitless.
But did you know that the tax implications of gift-giving vary depending on the type of gift and who it’s for? Although mentioning both taxes and gifts in the same sentence may be a buzzkill, understanding the rules set by the Australian Taxation Office is essential.
So, in this blog post, we will understand the tax implications of gifts for both parties involved.
What Is Counted As A Gift As Per The ATO?
As per the Australian Taxation Office (ATO), a gift is a transfer of money, property or assets that meet the following three conditions:
- It is a voluntary transfer
- The giver does not materially benefit from the given gift
- The giver does not receive anything in return
The above definition is generous, and it can cover a huge range of gifts, especially financial ones.
Does A Gift Of Money Count As Taxable Income?
In short, according to the Australian Taxation Office (ATO), monetary gifts from relatives and friends, even if received from overseas, do not need to be declared as assessable income in your tax return.
However, there are a few key conditions to consider:
- Genuine Gift: The money must be a genuine gift, with no expectation of receiving anything in return from the recipient.
- Not Income-Related: The gift should not be linked to any income-producing activities of the recipient.
- Sourced from Giver’s Own Funds: The gift should come from the giver’s personal funds in their name.
For example, if your parents give you money but expect you to perform a service in return, and that service is related to your income-producing activities, it might be considered taxable by the ATO.
Additionally, any income earned from the gifted money, such as interest from a savings account or returns from investment shares, should be reported in your tax return.
It’s essential to note that different rules apply when giving assets instead of cash. For instance, giving someone a house or intangible assets like shares or cryptocurrencies could incur capital gains tax (CGT) if treated as a sale.
On the flip side, if you receive or inherit assets as a gift, they are only taxable if you generate income from them or decide to sell them later, in which case, you would declare it in your tax return. Keep these nuances in mind to navigate the tax implications of monetary gifts and assets.
How To Prove The Money Received Is A Gift
If you’ve received money as a gift, the ATO has good news for you – for one-time gifts, there’s no need to worry about it for tax purposes. You won’t be required to provide proof unless specifically requested. In such cases, if the ATO does ask for verification, a simple letter or any written evidence from the person who gave you the gift will suffice.
They just need to confirm in writing that the money was indeed a gift. This straightforward approach ensures that you’re covered in case the ATO seeks confirmation, making the process hassle-free.
Do You Need To Report Gift Money To Centrelink?
The idea of giving and receiving cash gifts might seem like a potential tax loophole, especially if you’re already benefiting from government assistance through Centrelink. However, rest assured, the ATO has taken steps to address this.
For individuals receiving Centrelink payments like JobSeeker, Age Pension, or Youth Allowance, any cash or monetary gifts, whether received or given, must be declared within 14 days.
If the gifted amount falls within the permissible gift limits, your payment won’t be affected. However, if the gift exceeds these limits, it could have implications for your payments, particularly if there’s additional income generated from the gift, such as deposit interest.
It’s crucial to stay informed about these rules and regulations to ensure compliance and avoid any unexpected impacts on your Centrelink payments. Keep in mind the 14-day reporting window and the specified gifting limits to navigate this aspect of financial management effectively.
How Much Money Can Be Gifted Tax-Free In Australia?
In Australia, there are specific limits on tax-free monetary gifts. As of now, the allowable gift limits for money are as follows:
- $10,000 per financial year.
- $30,000 over a rolling period of five financial years, provided that in any given year within this period, the gift amount doesn’t exceed $10,000.
These limits are applicable to both individuals and couples acting as a legal entity, whether giving or receiving money domestically or from overseas. Gifts falling within these limits, along with meeting other specified requirements, are categorized as ‘allowable disposable income’ and do not require a declaration to Centrelink or the ATO.
However, it’s crucial to note that if a gift surpasses these limits, the excess may be assessed as a deprived asset. A deprived asset refers to an asset, income, or income source deliberately diminished or destroyed in value. Examples include selling a car or hiding income by gifting it to a family member. It goes without saying, though – engaging in tax fraud is strongly discouraged.
Some individuals opt to give within these gift limits to potentially enhance their payments. Yet, it’s essential to consider individual circumstances, as this strategy may not always yield the desired outcome.
For instance, a pensioner providing their child with $10,000 in a given year to reduce their assets and potentially increase their pension income might not see the expected results. Centrelink could view the pensioner’s assets as largely unchanged, leading to no significant alteration in their pension amount.
Furthermore, exceeding the allowable gift limits may subject the excess to asset and income testing by Centrelink for up to five years from the date of the gift, potentially impacting future payments. It’s crucial to be mindful of these considerations when navigating the landscape of tax-free monetary gifts in Australia.
Tax Implications In Giving The Gift
When it comes to giving gifts, you generally don’t need to worry about tax implications unless you’re gifting an asset subject to capital gains tax (CGT). Assets like investment properties or shares fall into this category. If you’re gifting such assets to your children, the ATO considers you to have received the market value of the asset at the time of the gift.
While you didn’t actually receive that amount in cash, you may still be liable to pay CGT if there’s been a capital gain on the asset – unless, of course, you’re gifting your primary residence. Fortunately, Australian taxation law exempts residential homes from capital gains tax.
So, unless you’re dealing with assets subject to CGT, giving gifts doesn’t usually come with tax obligations for the giver. It’s important to be aware of these considerations, especially if you’re contemplating gifting significant assets, to ensure you’re well informed about the potential tax implications.
Need Some Help? – Clear Tax Is Here For You
We understand that tax matters can be quite overwhelming. A slightest mistake may lead to an unexpected tax bill. Thus, you not only need to pay utmost attention to it, but also have to stay up-to-date with your tax obligations.
With Clear Tax Accountants, a team of professional and experienced tax accountants in Melbourne, you need not worry about your tax obligations. From helping you make the most out of tax deductions to tax on gifting money to family members, we can guide you through it all.
So reach out to Clear Tax Accountants today and experience the ease of handling your tax matters. Call us at 1300 417 399 or drop an email at admin@cleartax.com.au.
Disclaimer: This website is designed for informational and educational purposes. Although we exert diligent efforts to maintain the accuracy and reliability of the content, we must disclaim liability for any errors, omissions, or inaccuracies. The content provided is “as is” and is not accompanied by warranties, whether expressed or implied. It should not serve as the sole basis for financial or legal decisions.
Given the evolving nature of financial regulations and conditions, the accuracy and reliability of information may change over time. Users are urged to exercise due diligence and consult with a qualified financial professional for personalized advice. ‘Clear Tax Accountants’ bears no responsibility for direct or indirect consequences, encompassing financial loss or legal matters stemming from the use or misuse of the information on this website.
Please be aware that the information, by no means, is a substitute for financial advice.