Many parents want to help their kids out, whether it’s by gifting cash to help with a home deposit or passing on assets like property or shares. But, while it may seem like a kind gesture, gifting comes with a surprising amount of tax complexity in Australia. If you’re not careful, you could end up with a hefty tax bill or face legal issues you didn’t expect. Here’s what you need to know to avoid those nasty surprises.
Cash Gifts: The Simpler Option, But Still Not Without Pitfalls
When you give cash, it seems pretty straightforward. The recipient doesn’t have to pay tax on it—great, right? Well, yes, but there’s a catch for the giver. If you’re withdrawing the money by selling an asset (like shares or property), that could trigger capital gains tax (CGT) for you. While the gift itself isn’t taxed, converting assets to cash to make the gift can be. So, if you’re thinking of withdrawing funds to give your child a generous gift, make sure you understand how your sale of assets could impact your tax obligations.
For example, let’s say you sell a property to raise money for a gift. If that property has increased in value since you bought it, you could face CGT based on the profit made from the sale, even though you didn’t make any money from the gift itself. It’s a simple gift, but one that’s potentially more expensive than you thought, explains Yahoo Finance.
Gifting Assets: The Tax Pitfall You Didn’t Expect
Now, here’s where things get trickier. If you’re gifting assets like property, shares, or even cryptocurrency, it’s not as simple as handing over the item. The ATO treats these transfers as though you’ve sold them at market value, meaning you may have to pay CGT based on any increase in the asset’s value since you bought it.
For example, if you bought shares for $20,000 and then gifted them to your child when they’re worth $60,000, you’re deemed to have made a capital gain of $40,000. Even though you didn’t receive any cash for the gift, you’ll still need to pay CGT on that gain. Many parents find this out the hard way when they gift their children property or investments “to help them out,” not realising they’re on the hook for taxes.
Property gifts are especially complicated because they can come with multiple tax implications. Aside from CGT, the recipient may also have to pay stamp duty, which is based on the property’s market value, depending on which state or territory they live in. It’s all about knowing the full picture before making that big decision to gift something as valuable as a house.
The Takeaway: Plan Ahead and Get Advice
In the end, it’s clear that gifting in Australia is far from a simple act of kindness—it’s something that needs careful thought and planning. While gifting cash may seem like a no-brainer, it can still carry tax risks for the giver, especially if assets need to be sold to fund the gift. Gifting assets like property or shares can bring about unexpected tax bills due to CGT, and property transfers could be subject to additional charges like stamp duty.
To avoid these avoidable problems, it’s crucial to get advice before gifting significant assets. Understanding the tax implications beforehand could save you from a nasty surprise down the road. The ATO has specific rules in place for gifting, and knowing these rules can help make your generosity truly tax-efficient. In the end, it’s better to be informed than to face a costly mistake.
So, if you’re planning on gifting something valuable, whether it’s cash or property, take the time to do your research and consult a tax professional. After all, helping your kids doesn’t have to come with a tax headache if you plan carefully.
