Andrew Jeffers here. I wrote the following article for a friend of mine a few years ago, but it is still all relevant.
Anyway, I hope you enjoy it!
Are gifts taxable? Please note that this isn’t personal financial advice and I don’t get into the full legal arguments.
In Australia, as an individual, we are generally taxed by the Australian Taxation Office on income that we receive from providing services (i.e. working).
We can also be taxed for our investments such as interest earned in a bank account or dividends received because we own some shares, these are classed as income. We may also be subject to Capital Gains Tax (CGT). This is a tax on increases in investment assets such as shares or property.
As a general rule, if the gift is not covered in the above situation, it will not be subject to income tax.
The ATO NEXUS
So what is the test? There is a great word called NEXUS. The ATO likes to use this words for many things. It means there is a direct link between the gift and the employment (i.e. working), or, in the case of a property, between the gift and the income stream of rent.
In terms of employment, if you get a car as a gift from your employer, then the ATO will probably consider there is a sufficient NEXUS between you receiving the gift and your job.
If your dad gives you a car for your birthday, you can be sure it will not be taxable.
You also need to be careful of making a gift payment continuously where it has the perception of income.
[ctt template=”7″ link=”mI97f” via=”no” ]You need to be careful of making a gift payment continuously where it has the perception of income.[/ctt]
For example, you rent your mother’s investment house, pay market rent, and then gift her money every month. This may be construed as a payment in lieu of rent; hence, it takes on the feel of income and will be taxed accordingly.
ATO Cases Related to Gifts
Have a look at these cases below to get an idea of the legal background:
Are Gifts Taxable? Case Studies
All these case studies assume there is no NEXUS between the gift and employment. Take a look at them:
- We inherited some money and want to give it to our son (no gift tax on the gift to the son)
- My mum gave her sister $139k is their gift tax (no gift tax to sister)
- Parents sending money from overseas to buy a house (no gift tax, although, there may be rules about bringing in large sums of money to the country)
- I won some money and want to give my mate enough to buy a house (no gift tax)
- I want to sell my home and buy a house for each son (no gift tax and, generally, if the house was your main residence you probably will not be liable for CGT)
- My daughter has been renting from me for. Now I want to sell the property and give her a portion of the rent she has been paying. This case is a bit more complex. She has been paying you rent, this is taxable to you. You want to sell the house. If you bought this after September 1985, generally, you will have to pay CGT. (no gift tax on giving the daughter some money back)
You may also be interested in: How Much Do You Know About Tax Deduction?
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