Gift Money Rules: What You Need to Know

March 5, 2024

Simon Madziar
Simon Madziar

Key Highlights

  • Cash gifts in Australia are generally tax-free, regardless of the amount
  • Gifting assets like property or shares may have different tax implications
  • Gifting money can potentially impact government benefits and pension payments
  • Monetary gifts do not count as taxable income for the recipient
  • It is important to consult with a tax professional for personalised advice on gifting money

Introduction

Gifting money is a common practice, whether it's for special occasions like birthdays or weddings, or for providing financial assistance to loved ones. However, it's important to understand the rules and regulations surrounding gifting money to ensure compliance with tax laws and to avoid any potential issues. In this blog, we will explore the key highlights and legal aspects of gifting money, particularly in Australia. We will also discuss the impact of gifting money on government benefits, tax implications, and strategies for effective money gifting. Whether you're a gift giver or a recipient, this blog will provide you with the information you need to navigate the world of gift money.

Understanding the Basics of Gifting Money

Gifting money involves the transfer of a certain amount of money from one person to another. It can be done for various reasons, such as celebrating a special occasion or providing financial support. However, it's important to understand the basics of gifting money, including any potential tax implications. When gifting money, it's essential to consider the rules and regulations surrounding monetary gifts.

Do gifts of money count as taxable income in Australia?

In summary, gifts of money from relatives and friends, including those from overseas, are not considered assessable income according to the Australian Taxation Office. Both the giver and receiver are not required to declare these gifts when filing their tax returns, regardless of the amount. However, certain conditions must be met for the gift to be classified as non-taxable income. These conditions include:

  • the gift being genuine with no expectation of anything in return,
  • not related to the recipient's income-producing activities,
  • and sourced from the giver's own funds in their name.

For instance, if a gift is given with expectations of a service in return and is related to the recipient's income-producing activities, it may be taxable by the ATO.

Additionally, you will need to report any income you earn on the money gift in your tax return. Common examples of this include any interest earned in a savings account or returns from investment shares.

It’s also worth noting that the rules are different if you’re giving someone assets instead of cash. For instance, if you give someone a house instead of a mere housing deposit, this is considered a sale in the eyes of the ATO and thus liable to capital gains tax (CGT).

Similarly, intangible assets like shares or cryptocurrencies could incur CGT if you give them as a gift.

However, if you receive or inherit assets as a gift, they’re only taxable if you earn any income from them or choose to dispose of them later (If you need to declare it on your tax return, we can assist you with your tax returns).

How gifted money may affect your eligibility for government benefits

Gifting money can potentially affect an individual's eligibility for government benefits, such as the age pension. When assessing eligibility for government benefits, including the age pension, Services Australia conducts an asset test. Gifting money can impact this assessment as the gifted money may be considered as an asset.

If the gifted money exceeds the allowable limits, it may affect the individual's eligibility for the age pension or other government benefits. It's important to consult with a financial advisor or contact Services Australia to understand the specific rules and requirements regarding gifting money and its impact on government benefit eligibility. By understanding the potential impact of gifting money on government benefits, individuals can make informed decisions and ensure compliance with the relevant rules and regulations.

I receive government benefits – will gifting money to someone impact my payments?

Individuals who receive government benefits need to consider the impact of gifting money on their payments. Gifting money can potentially affect government benefits, such as JobSeeker, Age Pension, or Youth Allowance.

It's important to consult with a financial advisor or contact the relevant government agency, such as Services Australia, to understand the specific rules and requirements regarding gifting money and its impact on government benefit payments. Additionally, the recipient of the gifted money may need to consider any potential impact on their assessable income for tax purposes.

Is there a limit to the amount of money I can gift?

Generally speaking, no. However, if you are receiving the Age Pension or other benefits from the government, there is a limit to the amount you can gift your children.

Whether you’re a single person or a couple, the permitted amount is $10,000 in cash and assets over one financial year or $30,000 in cash and assets over five financial years. This is commonly known as the $10k and $30k rule or a ‘gifting free area.

The gift limits are applicable to individuals or couples acting as a legal entity, whether giving or receiving money domestically or from overseas. As long as the gift complies with the specified limits and other criteria, it falls under 'allowable disposable income' and is not required to be reported to Centrelink or the ATO. If a gift exceeds these limits, the excess will be considered a deprived asset, which refers to intentionally diminishing or destroying the value of an asset, income, or a source of income. Examples of deprived assets include selling a car or concealing income by gifting it to a spouse or family member. (Of course, it is essential to refrain from engaging in tax fraud).

Do I have to tell Centrelink?

Providing monetary gifts may present a significant tax loophole, particularly if you are currently obtaining government benefits via Centrelink. Nonetheless, there's no need to worry as the shrewd ATO is already ahead of the game. If you are in receipt of a Centrelink payment like JobSeeker, Age Pensioner, or Youth Allowance, you must report any cash or financial gifts given or received within a 14-day period. As long as the amount is within the permitted gift limits, it will not have an impact on your payment. However, exceeding the gifting limits could potentially affect your payments, especially if the gift generates income such as interest from a deposit.

Strategies for avoiding potential issues with gifting money while on government benefits

To minimise potential issues when gifting money while on government benefits, it's advisable to consider the following strategies:

  • Seek advice from a financial advisor: A financial advisor can provide personalised advice based on your individual circumstances and help you navigate the rules and regulations surrounding gifting money and government benefits.
  • Consider non-monetary gifts: Instead of gifting money, consider non-monetary gifts such as goods or services that may not have an impact on government benefits.
  • Be mindful of the asset test: When gifting money, be aware of the impact it may have on the asset test conducted by Services Australia. Avoid exceeding the allowable gift limits to minimise the potential impact on government benefits.

By implementing these strategies, individuals can avoid potential issues when gifting money while on government benefits and ensure they comply with the relevant rules and regulations.

What happens if I go over the gifting limit?

When you give money to your children, the amount you give is considered as your ‘allowable disposable income’. Any amount that goes beyond the gifting limit is then categorised as a ‘deprived asset’ or 'diminished asset', as per the Australian government's definition of parting with an asset for less than its value.

Every five years, Centrelink evaluates gifts you give to determine if you have reduced your available assets or surpassed the gifting limit. If you have exceeded the allowable gifting limit, Centrelink will take two actions:

  • they will factor the amount into your asset test to determine your eligibility for the Age Pension and its rate,
  • they will also apply deeming to calculate your income based on your financial assets.

One potential drawback of deeming is that it assumes the rate of income your assets earn, regardless of whether they meet that assumption or not. Therefore, if Centrelink suspects that you may be earning income from your gifts, it could have a negative impact on your future payments.

How are other gifts like crypto assets or shares taxed?

Gifting assets like crypto assets or shares may have different tax implications compared to gifting money. These assets may be subject to capital gains tax (CGT) if their value has increased since the time of the gift. The market value of the assets at the time of the gift is considered for tax purposes. It's important to consult with a tax professional to understand the specific rules and regulations regarding gifting assets and any potential tax implications, including CGT.

Tax implications of gifting cryptocurrency

Gifting cryptocurrency can have tax implications, particularly in relation to capital gains tax (CGT). When gifting cryptocurrency, the market value of the cryptocurrency at the time of the gift is considered for tax purposes. If the value of the cryptocurrency has increased since its acquisition, CGT may be applicable. The CGT is calculated based on the difference between the market value at the time of the gift and the acquisition cost.

Gift tax on stocks and other assets

When gifting stocks or other assets, it's important to consider the potential tax implications. The market value of the assets at the time of the gift is relevant for determining any potential tax. If the assets have appreciated in value since their acquisition, a capital gain may be realised, which may be subject to tax. It's advisable to consult with a tax professional to understand the specific rules and regulations surrounding tax and any potential tax implications of gifting stocks or other assets.

The Pros and Cons of Gifting Money to Children

Gifting money to children can have both pros and cons. On the positive side, monetary gifts can provide financial support and assistance to children, helping them achieve their goals or improve their financial situation. It can also be an opportunity to teach children about money management and financial responsibility. However, there are potential cons to consider, such as the tax implications for both the giver and recipient, and the impact on the recipient's financial security. It's important to weigh the pros and cons and consider individual circumstances when deciding whether to gift money to children.

Benefits of Monetary Gifts

Monetary gifts can provide several benefits, including:

  • Financial support: Monetary gifts can assist children in achieving their financial goals, such as saving for a home deposit or starting a business.
  • Higher interest rate: By gifting money, children can potentially earn a higher interest rate on their savings, particularly if they deposit the gifted money into a high-interest savings account.
  • Financial security: Monetary gifts can contribute to children's overall financial security, providing a safety net or additional funds for emergencies or unexpected expenses.

By gifting money, individuals can provide tangible financial benefits to their children, helping them build a strong financial foundation and achieve their goals.

Potential Drawbacks

While monetary gifts can be beneficial, there are potential drawbacks to consider, such as:

  • Gift tax implications: Depending on the type of gift such as shares or property, there may be tax implications. It's important to be aware of the tax rules and regulations to avoid any potential tax obligations.
  • Market value considerations: The market value of the gifted investment may be relevant for tax purposes. If the market value has increased since the time of the gift, there may be capital gains tax implications.
  • Interest rate considerations: While gifting money can potentially earn a higher interest rate, it's important to consider the interest rate environment and any potential changes that may affect the return on the gifted money.

By weighing the potential drawbacks, individuals can make informed decisions when gifting money to children and mitigate any potential negative consequences.

Strategies for Gifting Money Effectively

Gifting money can be done effectively by considering the following strategies:

  • Timing your gifts: Consider timing your gifts strategically to minimise any potential tax implications and maximise their benefits.
  • Consult a financial advisor: Seek advice from a financial advisor who can provide personalised guidance based on your individual circumstances and help you make informed decisions when it comes to gifting money.
  • Consider monetary gifts: Monetary gifts can be a flexible way to provide financial support, allowing the recipient to use the money as they see fit.

By implementing these strategies, individuals can maximise the effectiveness of their monetary gifts and ensure that they align with their financial goals.

Timing Your Gifts

Timing your gifts strategically can help minimise potential tax implications and ensure that they align with your financial goals. Consider the following factors when timing your gifts:

  • Financial year: Be aware of the financial year and any applicable limits for tax purposes.
  • Gift limits: Familiarise yourself with the allowable gift limits for Services Australia to avoid exceeding them and potentially incurring tax.
  • Tax implications: Understand the potential tax implications of gifting money/assets and how they may be impacted by the timing of your gifts.

By considering these factors and consulting with a tax professional, you can determine the optimal timing for your monetary gifts and ensure that they align with your financial objectives.

Considering Your Financial Security

When gifting money, it's important to consider your own financial security and the impact it may have on your overall financial situation. Ensure that gifting money does not compromise your own financial stability or jeopardise your long-term financial goals. Additionally, consider the potential impact on your savings account and any changes in your financial situation as a result of gifting money. By carefully considering your financial security and consulting with a financial advisor, you can make informed decisions and ensure that gifting money aligns with your overall financial plan.

Money Gifting and the Australian Taxation Office (ATO)

When it comes to gifting money in Australia, it's important to understand the guidelines and regulations set by the Australian Taxation Office (ATO). The ATO oversees the tax implications of monetary gifts and provides guidance on reporting requirements. By familiarising yourself with the ATO's rules and regulations, you can ensure compliance with tax laws and avoid any potential penalties or issues.

What Counts as a ‘Gift’ According to ATO

According to the Australian Taxation Office (ATO), a gift is defined as a voluntary transfer of money, assets, or property where the giver does not receive (or expect to receive) anything in return and does not materially benefit from the gift. This definition includes monetary gifts of any amount, as well as other types of gifts. It's important to be aware of the ATO's definition of a gift to ensure compliance with tax laws and reporting requirements. By understanding what counts as a gift according to the ATO, individuals can navigate the tax implications of gifting money effectively.

Impact of Monetary Gifts on Your Child’s Tax

Gifting money to your child can potentially have tax implications for both the giver and the recipient. It's important to understand the impact of monetary gifts on your child's tax obligations. While monetary gifts do not count as taxable income for the recipient, any interest earned on the gifted money may need to be declared as income. Additionally, it's important to consider the potential impact on the recipient's taxable income and consult with a tax professional to ensure compliance with tax laws and reporting requirements.

Does Gift Money Count as Taxable Income?

Gift money does not count as taxable income for the recipient. According to the Australian Taxation Office (ATO), monetary gifts given out of love by relatives are not considered assessable income and do not need to be declared. However, it's important to note that any interest earned on the gifted money may need to be declared as income. It's advisable to consult with a tax professional to understand the specific tax implications of gift money based on your individual circumstances. By ensuring compliance with tax laws and reporting requirements, both the giver and the recipient can navigate the tax implications of gift money effectively.

How to Handle Gift Money on Tax Returns

When it comes to handling gift money on tax returns, it's important to accurately report the gifted money and any associated income. While gift money itself does not need to be declared on a tax return, any interest earned on the gifted money may need to be included as taxable income. Additionally, it's important to consult with a tax professional to ensure compliance with tax laws and reporting requirements. By accurately handling gift money on tax returns, individuals can navigate the tax implications effectively and ensure compliance with the Australian Taxation Office's regulations.

Conclusion

To sum up, gifting money can have legal and financial implications that you need to be aware of. Understanding the basics of monetary gifts, including the purpose, tax implications, and legal limitations, is crucial. If you receive government benefits, it's important to know how gifting money can impact your payments and eligibility. Seeking professional advice is highly recommended to navigate these complexities effectively.

Timing your gifts and considering your financial security are strategies that can help you make the most of gifting money. Additionally, it's essential to understand the rules and regulations of the Australian Taxation Office (ATO) regarding gift declarations and taxable income. Familiarise yourself with the frequently asked questions to clarify any doubts about gifting money to your children in Australia.

Remember, gifting money can have its benefits, but it's important to approach it with careful consideration and proper knowledge of the legal and financial aspects involved.

Frequently Asked Questions

How much money can I gift my child tax-free in Australia?

In Australia, you can gift your child up to $10,000 per financial year tax-free. This amount can be gifted as a lump sum or in smaller amounts throughout the year. It's important to consult with a tax professional to understand the specific rules and regulations surrounding tax-free gifting.

Is there a gift limit?

There is no limit on how much money you can give or receive as a gift for the ATO. There may by other limits depending on your circumstances imposed by Services Australia.

Does my child have to pay tax on monetary gifts?

No, monetary gifts given out of love by relatives do not count as taxable income for the recipient. However, any interest earned on the gifted money may need to be declared as income. It's advisable to consult with a tax professional to understand the specific tax implications for your child.

Can gifting money to my children improve my pension payments?

Gifting money to your children can potentially impact your pension payments, as the gifted money may be considered as an asset in the asset test. It's important to consult with a financial advisor or contact Services Australia to understand the specific rules and requirements regarding gifting money and its impact on pension payments.

Do I need to declare gift money to Centrelink?

If you are receiving government benefits through Centrelink, you may need to declare gift money received or given within 14 days. It's important to consult with Centrelink or a financial advisor to understand the specific reporting requirements and obligations.

Looking for help with your accounting, bookkeeping or taxes? We can help! Click below to call or schedule a online appointment with us.

*Please note that the above information is general advice only. We recommend you seek advice from a specialist relevant to your personal situation. This information is correct at the time of publishing and is subject to change*

Tax laws and regulations can change over time, so it is important to stay informed about any updates or amendments that may affect your tax obligations. The Australian Taxation Office (ATO) is the authoritative source for the most up-to-date information regarding tax requirements and regulations in Australia.

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