Legal Tip 88: Gifting to related parties Strategy

There are various strategies which involve gifting. In brief gifting can be beneficial for

1. Asset protection
   
   
2. Tax advantages
   
   
3. estate planning
   

Once a gift is made it means the asset given is no longer an asset of the giver. So if Borat gives $100,000 to a spouse or a discretionary trust and Borat later becomes bankrupt the $100,000 is no longer his. Keep in mind there are various ways a gift can be clawed back

A tax advantage can be gained in several ways. A person gifts $100,000 to their spouse who invests the money. The receiver of the gift would be the one investing and earning the income so he or she would be taxed on that income.

Estate Planning involving a gift can make sure an asset goes to the right person. An example is someone who knows, or thinks, that their will is going to be challenged so they give away their assets prior to death. (note under NSW law assets given away within 3 years of death can be attacked).

There are other aspects too such as emotional enjoyment by both giver and receiver (stop thinking about sex!)

And naturally there are many issues to consider legally. The recipient could lose the money, you could lose control of a trust, or you may want the money back.

 

Hi Terry,

Loving all you tips much appreciated!

So what is the maximum one can gift. Can I simply gift $500k to another family member or friend? Is there a maximum amount?

Thanks!

 

no restrictions.

 

Thanks Terry,

I thought I'd heard $30k being tossed around must have been to do with something else. Cheers

 

Super contributions perhaps?

Before giving away valuable assets make sure you seek legal advice.

 

Yeah that was probably it. Thanks again helpful as always!

 

That might relate to the Social Security laws for the purpose of getting the govt pension

 

According to Services Australia:

The allowable disposal amount is the same if you’re a single person or a couple. It’s either:

• $10,000 in 1 financial year
• $30,000 over 5 financial years – this can’t include more than $10,000 in a single financial year.

 

Note that this is only for the purposes of calculating the assets test in relation to getting social security benefits such as the aged pension.
There are no restrictions on gifting. You can give away as much as you want, but it may affect the amount of pension that is received.

 

What if you set up a company and lend it substantial amounts of money to run a business. But the business goes bust and you can’t get the money back. I’m thinking you can write the lent money off on your own tax. So if you got a large capital gain, you simply write off the capital loss (money lent to company).

 

Yes it could be a capital loss to you, if structured as a loan with interest from the beginning. There are many private rulings out there where the person behind the company has just used their credit card or loan for company business and cannot write this off as it wasn't set up right

 

Debt forgiveness has other cgt consequences. A creditor wont write off a debt as much as a liquidator must declare it as unable to be paid.

 

Or you can just loose it playing cards in your home.
Then there's 2 up on Anzac day

 

Geez mate such brilliance of yo Druie accountant... send me her name.

 

Debt forgiveness is different to the inability to get your money back. One is voluntary the other isn't

 

If you have a related party loan then debt forgiveness issues can occur. If you seek to liquidate and declare a CGT loss then that also fails since there is no declaration, and the only reason the debt isnt recoverable as its being disregarded / forgiven. Could also be a fringe benefit in some cases.

Guide to capital gains tax 2021

A recent ATO ruling (TD 2022/1) also considers the love & affection exception to the CGT issue and this exception is not applicable when a company is involved

 

That is a separate topic to this question asked though. If you are unable to recover your money it won't be debt forgiveness.

 

In many cases it can be wise for a (friendly) liquidator to facilitate such matters rather than a company director saying they wont / cant pay. In many cases a liquidator may even agree to a (associate) creditor making settlement for a lesser sum. The world of liquidation can be voodoo

 

Yes a company or trustee which you control won't be able to jus say 'we refuse to pay' as if you didn't take any further action it would not be a capital loss. It needs to be unrecoverable such as occurs when a company is liquidated with no money to pay the debt. It might also be possible with a court judgment or a loan which is statute barred by the limitations act - but even that may not be enough.

 

These issues also have some relation to recent activity regard trust distributions. Old loans coul fall foul where there are control issues