One of the best ways to lend a hand to those you love is by gifting them money. Extra financial support is beneficial in such times, and we can all use it.
What types of payments are considered gifts in Australia, and what amount of money can we use gift free?
Are Cash Gifts Taxable in Australia?
Australia has no tax-free gift limits; gifts and inheritances are exempt from taxes. This is because they are not reported as income. There are several ways you may give as much as you like, such as:
- There is a voluntary moving of funds
- The money is moved for personal reasons
- The transfer had no tangible gain, and the giver expects nothing.
The receipt or the donor can be liable for capital gain tax if the above criteria are unmet. The amount is taxable if each party earns income from the gift.
When giving money, those who receive government benefits may be subject to consequences such as income and asset requirements for Parenting Payments or Age Pension.
Do I Have to Pay Tax on a Gift From My Parents in Australia?
No, they can give you cash if it comes from their resources without expecting anything in return. When your parents send you money from abroad because they spend their golden years there, you won’t have to pay taxes.
If you deposit the earnings in a savings account, they are treated as assessable income and start earning interest. You must include this information in your tax return.
Is Gifting Assets the Same as Gifting Money to Family Members?
Be aware that there are different regulations for gifts of assets.
If parents gave their child a house, AOT still applies. If you sell a piece of property, you are responsible for CGT (even if your primary residence is exempt from CGT). Instead of giving away your home to assist your children in finding housing, pay the deposit. Consider other gifts, like a down payment on a house.
The new owner is responsible for paying capital gains tax when you gift shares, cryptocurrencies, or intangible assets. Only when they sell assets to generate income does this occur. The capital asset is being disposed of, so the ATO claims that the donor must pay CGT.
Check out our list of the top apps to learn more about crypto trading in Australia.
How Much Money Can a Pensioner Receive as a Gift in Australia?
You may be eligible for Age Pension, Job Seeker Payments, or Mobility Allowance from the government. However, there are some restrictions you must follow if you want to give money to your loved ones. The phrase “allowable disposable amount” refers to this sum and illustrates the maximum amount that can be given without triggering benefits.
Did you know that 26% of adults in Australia receive government benefits?
The maximum gifts are:
- $10,000 for a full fiscal year.
- $30,000 over five fiscal years, as long as you don’t exceed the $10,000 tax year limit in any year.
Both individuals and couples are subject to the restriction.
When you receive a gift that exceeds these restrictions, the extra money is considered for your asset test. As a result, you are deemed to be making more money for the excess.
Regardless of whether the asset has produced any income, the Australian government assumes that you earn a certain amount from the excess amount following deemed provisions. This sum is considered after the gift is given and is considered in your five-year income test.
Consider the following scenario: you donate $100,000 for three years, then another $10,000 the next year, leaving you outside the “gifting-free area.” The extra $10,000 generates income and is a financial asset. Five years after exceeding the limit, the amount will be considered in your income and asset test.
Inform Centrelink via the Express Plus Centrelink mobile app two weeks after giving the gift. You can also use myGov or the standard payment line.
Granny Flat Agreements and Special Disability Trusts are both governed by different laws.
Can Gifting Improve My Pension Payments?
One way to lower your Centrelink payments is by giving your assets as gifts. For instance, if you donate $100,000 annually, your pension payment goes up by $780,000.
This is just a hypothetical situation; your pension depends on several variables. Centrelink may raise your payment when you believe you use gifts to reduce your assets. This could adversely impact future costs.
Tips to Avoid Paying Tax on Gifts
In some exceptional cases, large amounts gits are occasionally subjected to the federal gift tax.
To avoid gift tax, read through the tips below:
1. Respect the Annual Gift Tax Limit
The best way to avoid paying the gift tax is to stay within the IRS-set limits. The cap is $17,000 per recipient for an annual gift in the 2023 tax year. You are responsible for making multiple gifts totalling $17,000 to people of your choice without paying the gift tax.
If you give more than that to any recipient, you will be subject to tax, so you must ensure the gift is under $17,000. For gift tax purposes, any sum below this is disregarded; however, if it exceeds $17,000, you must submit a gift tax return. This will demonstrate how it is used to exclude people permanently.
It stays under $17k because all taxes are included, and none are owed; you won’t owe any taxes even if you make more than $17k. The sum under $17k is disregarded, but the 417k is crucial. It is best to stay under the annual exclusion since you need a lifetime exclusion to file a gift return for over $17,000.
2. Leverage Marriage in Giving Gifts
Unexpectedly, married couples are given separate treatment for the gift tax cap. The gifts they receive or give away will be treated differently from those of the other spouse, whether or not the couple files their taxes jointly.
This parameter has two functions. You and your spouse may give gifts totalling up to $17,000 to each recipient in a calendar year (but only if the gifts come from jointly owned property). Married couples can donate up to $34,000 per recipient year.
Second, this rule has advantages for married couples. To donate up to $15,000, each spouse must exceed the annual gift tax threshold. For couples, the yearly limits are handled differently. This cap is applicable regardless of the shared or combined assets.
For instance, in exceptional circumstances, you and your spouse may give another married couple up to $68,000 without exceeding the gift tax cap. For example, you could give up to $17000 to your spouse in addition to your gift when you give a friend $17,000 and then give the friend’s spouse $17,000.
3. Spread a Gift Out Between Years
Ensure that you are at most $17,000 in one tax year. This is one of the ways that will help spread the gift tax over the years and avoid the gift tax. By spreading out over a certain period, you will reduce the overall taxes you currently owe, and this strategy will help you minimise the amount you give.
For instance, if Sarah wants to avoid paying the gift tax, she will give her niece Lisa up to $25,000. In 2021, Lisa can receive $12,500 from her aunt Sarah. On her next birthday in 2022, Lisa can receive the remaining $12,500 from Sarah without paying the gift tax.
4. Provide a Gift Directly for Medical Expenses
An amount set aside expressly for medical purposes is among the most notable amounts to the git tax limit. The medical institution or insurance provider, however, receives the payment of the gift directly to them. These gifts are still subject to the gift tax limit and are made without covering the medical costs to the recipient.
For instance, if you wanted to cover your grandparents’ cost of living in a nursing home, you may need to work the billing directly with the organisation. You can pay for the medical cost without worrying about exceeding the annual gift limit.
5. Take Advantage of the Lifetime Gift Tax Exclusion
In 2023, the mentioned $12.92 million lifetime gift tax exclusion will be in effect. You can make gifts totalling up to $12.92 million without accruing any gift-giving debt during your lifetime. Even a penny over the exclusion turns a gift into a taxable one, so the tax will rarely be owed.
Please be aware that the credit also applies to estate taxes and gifts made during one’s lifetime. I will have $5 million less credit if I spend $5 million on lifetime gifts. This “unified” credit may cover gift or estate taxes.
6. Provide a Gift Directly for Education Expenses
Educational gifts are similar to medical expenses in that when payment is made directly to the institution, they can also avoid the gift tax limit.
The donor can pay money to the school or university but not to the student if the money is gifted for tuition costs or other qualifying expenses.
Gifts made to cover books or other supplies go towards the annual gift and do not count towards the education exclusion, but they go up instead.
7. Consider Gifting Appreciated Assets
To avoid paying the gift tax, you can gift appreciated assets. These assets are stocks or real estate, for example. The gift tax is based on the asset’s fair market value rather than the gift’s original purchase price when gifting appreciated assets.
Put another way, if you purchased a stock for $10,000 and it is now worth $20,000, you can give it to someone and only pay gift taxes on the $20,000 value, not the $10,000 price you paid.
The basis of the asset is reset to the fair market value at the time of inheritance, so it’s essential to keep in mind that when assets are inherited, appreciated assets receive a “step up” in basis; when the assets are eventually sold, this can lead to a lower capital gains tax.
It is always a good idea to consult a tax professional to ensure you are utilising all accessible tax benefits and minimising your tax liability. Tax planning can be complicated, so it’s essential to remember this.
Bottom Line
Cash gifts shouldn’t be given because there are no tax repercussions for the giver or the recipient. If you have any claims against the government, consider how the gift will affect your ability to pay your taxes or your eligibility for benefits.
FAQs:
1. Is there a gift tax in Australia?
No, gifts are not taxable because they are not regarded as reportable income in Australia. However, if the gift you receive or give generates income, it will be taxed at your marginal tax rate.
2. Is there a limit on gifting money to family?
No, but you are free to donate any amount you choose. You should be aware that, as long as your total annual giving does not exceed $10,000, you may give up to $30,000 over five years if you receive government benefits.
3. Are assets transferred after death in a will tax-free?
In Australia, the transfer of assets after death through a will is generally tax-free. This is one of the key differences between Australia’s tax system and those of many other countries. However, it’s important to understand the nuances of this rule:
No inheritance tax: Australia abolished inheritance taxes (also known as death duties) in 1979. This means that beneficiaries don’t pay tax directly on the assets or money they inherit.
Capital Gains Tax (CGT) considerations:
○ When a person dies, their assets are generally transferred to their legal personal representative (LPR) or directly to a beneficiary without triggering a CGT event.
○ However, if the beneficiary later sells the inherited asset, they may be liable for CGT on any increase in value since the deceased acquired the asset.
○ For the family home (main residence), special rules apply that can provide a full or partial CGT exemption.
Superannuation:
○ If superannuation benefits are paid to a dependent (such as a spouse or child under 18), they are generally tax-free.
○ Non-dependent beneficiaries may have to pay tax on the taxable component of the superannuation death benefit.
Income from inherited assets: While the inheritance itself is tax-free, any income generated from inherited assets (e.g., rent from an inherited property or dividends from inherited shares) is taxable and must be declared on the beneficiary’s tax return.
Non-resident beneficiaries: Different rules may apply for beneficiaries who are not Australian residents for tax purposes. They may be subject to withholding tax on certain types of income from their inheritance.
Transferring assets vs. selling assets: If the executor sells assets to distribute cash to beneficiaries, CGT may apply to those sales.
While assets transferred through a will are generally tax-free at the time of transfer, the tax implications can be complex depending on the types of assets, the status of the beneficiaries, and what happens to the assets after they’re inherited. This complexity underscores the importance of proper estate planning.
Online estate planning services like Willed can help you create a comprehensive will that takes these factors into account, ensure that your assets are distributed in the most tax-efficient manner possible, and potentially save your beneficiaries from unexpected tax liabilities in the future.
4. Does gifted money affect Centrelink?
One-time gifts made in one lump sum are not considered reportable income and must not be disclosed. However, if you put the whole amount into a savings account, you’ll get interest. If so, this will be considered when determining your income and assets, which could reduce the amount of Centrelink benefits you receive.
5. How often can a pensioner gift money?
You can give money to your children and grandchildren as frequently as possible if you don’t exceed the “$10,000 rule” in a single tax year. If you go over this cap, your government pension payment will be impacted, and the excess will be considered in your income and asset test.
6. How much money can you give as a gift tax-free in Australia to friends?
Gifts or cash from friends has no tax repercussions. This means that they are the same, like gifts from family. The gift must be sincere and cannot financially benefit the gift-giver or the recipient. You must include the gift in your yearly tax return if the gift results in income.
Disclaimer – we highly advise you to talk to an accountant or tax professional before gifting any money. The rules and regulations can change at any time.