Passing on your wealth to family members can be an important part of your life plan.
Whether undertaken at the end of life or simply because you want the next generation to benefit from your hard work whilst you are all young enough and well enough to enjoy it, gifting assets to your children or grandchildren is quite common.
But can come with unexpected tax consequences, too.
The most commonly gifted assets are (in no particular order):
Property (such as land or buildings)
If you are simply giving cash, there are no tax implications for either the giver or the receiver of the gift.
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However, for other types of assets, Capital Gains Tax (CGT) may need to be considered. That’s not an issue for cars (which are exempted from CGT) but is likely to be an issue for gifts of both shares and property.
So, if you decide to give shares or property, 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.
There are no immediate tax consequences for the receiver of the gift – they would be deemed to have acquired the gift at (typically) market value and would then be subject to CGT when they ultimately sell the asset.
TIP: If gifting shares or property, make sure you know what the market value of the asset actually is on the date of gift.
That’s not difficult for shares listed on the stock exchange – you can simply look up the value of the shares that day online. But for private company shares or real estate, you may need a professional valuer to give you a written valuation.
Note also that 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.
This would be included in the recipient's tax return and taxed at their marginal tax rate.
Any tax concessions?
If you decide to pass on the home you are actually living in (perhaps spurred by a tree-change or a desire to downsize), you may able to use the main residence exemption to reduce or eliminate your CGT bill.
If you pass on shares in a private company (perhaps your own company, spurred on by your impending retirement), there are a number of CGT concessions that could substantially reduce or completely eliminate any CGT bill.
Beware that these small business CGT concessions come with many conditions that must be met, so be sure to take professional advice before taking any action.
There is nothing positive about learning that you don’t have long to live but it can at least be an opportunity to make sure your family is properly provided for.
Most people use their will to determine how their assets will be distributed after death but it can 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.
So, you get to transfer the assets tax-free and the recipients will also benefit because they’ll acquire the assets at a higher CGT cost base, meaning lower CGT bills for them when they ultimately sell the assets.
They will acquire the assets for market value as a result of a lifetime transfer, rather than at your original purchase cost as a result of inheriting on death.
Anything else I need to know?
Not really tax consequences as such, but if you’re receiving the age pension or any other social security benefit from Centrelink, giving gifts can impact the benefits you receive.
Basically, there are limits to the value of gifts that you can give, which are currently:
Up to $10,000 per financial year; and
Up to $30,000 over five consecutive financial years.
These limits are the same for singles and couples.
If the value of your gifts exceed these limits, the excess amount will still be included as your asset in the assets test.
You will also be deemed to be earning income from the excess amount as part of your income test for the next five years.