Is there such a thing as gift tax? Which gifts are taxable and which aren’t? How can I identify the taxable and non-taxable gifts?
These are the most frequently asked questions when it comes to gift tax.
Before we get any further, here’s the key element about gift tax:
There is no gift tax in Australia if it’s purely a gift.
I’ve seen a lot of ambiguity around this subject, so let’s bring some clarity to the topic:
What is a gift?
This is pretty self-explanatory.
A gift is merely… a gift. For example:
- Parents from overseas who want to give their child some money to help them out with a house.
- Grandparents sell their property and want to give their grandkids the money.
- Parents from overseas want to gift their child, who’s studying in Australia, $1,000 a week to cover for their rent and study expenses.
These all classify as gifts.
So a gift is anything that has to do with giving people money that’s not related to them performing a service or being involved in some sort of income-producing activity.
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The difference between a gift and a non-gift is…
…this thing called a nexus (it means a link or a tie).
- Is there a tie between a business or a work activity and the gift?
- Is there a tie between a rental property and the gift?
If the answer is yes, then you have a non-gift.
If there is no link between the two, that’s a gift.
Let’s take a look at an example:
Let’s say a couple should be getting $1,000 a week from renting their property. Instead, they choose to let their child rent the apartment for $200 a week.
This isn’t a gift. This is actually payable at $1,000.
They’re technically gifting the $1,000 made each week since the rent is only $200 instead of $1,000. Therefore, they would have to pay tax on the full $1,000.
This is not a gift because there’s a relation to an investment or something that’s going to earn an income.
Here’s a question that’s going to help you quickly differentiate between a gift from a non-gift:
Why were you given this?
Tip: If a gift is purely based on your desire to help someone out, there is no gift tax attached to it.
[ctt template=”7″ link=”xd1iP” via=”no” ]If a gift is purely based on your desire to help someone out, there is no gift tax attached to it.[/ctt]
Gifts vs Centrelink
I’m not going to claim I know all the rules and regulations around Centrelink. But here’s what I do know:
There’s a certain money limit you’re allowed to have before they cut your Centrelink benefits.
Let’s say that limit is $600,000. You have $1,000,000 dollars and you want to give $100,000 to each of your four children. You will have left about $600,000 and you’ll get the full benefits.
Well, I’m sorry to destroy your perfect fantasy, but that’s not the case.
Centrelink recognised you’re going to give away some money. They will still use part of that money in the calculation over the next several years.
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Do you want to find out more about gift tax or another type of tax?
Here at Shuriken, we are eager to start talking about gift tax with you – so simply contact us using the contact button below.