Tax Tip 57: Gift Tax

Tricked you there with the heading because there are no taxes on gifts in Australia - if the gift is actually a genuine gift.

See TR 2005/13 Income tax: tax deductible gifts - what is a gift
http://law.ato.gov.au/atolaw/view.htm?Docid=TXR/TR200513/NAT/ATO/00001

A series of ongoing gifts will also not be taxable as long as it is not really income described as a gift. e.g. If your parents were to give you $100 per week each week for life this would not be income.

Authorisation Number: 1011415916052
https://www.ato.gov.au/rba/content/?ffi=/misc/rba/content/1011415916052.htm

Authorisation Number: 1011370948576
https://www.ato.gov.au/rba/content/?ffi=/misc/rba/content/1011370948576.htm


However, if the gift is received as a result of providing a service it would be considered income.
e.g. religious services by a priest = assessable income to the priest
PBR Authorisation Number: 1011349176699
https://www.ato.gov.au/rba/content/?ffi=/misc/rba/content/1011349176699.htm

 

I should just add that there are no direct taxes on gifts received as inheritances either.

But indirectly there can be - e.g.:
rental property of deceased inheritated and later sold
Superannuation death benefits, whether directly or indirectly (some only)

 

How about an inherited property after death if sold within 12 months? No CGT. If held after 12 months then sold, Cost base adusted at time of inheritance and then CGT applied to the gain at selling price?

 

If you inherit a rental property that was purchased by the deceased after CGT had come in then you will inherit the cost base of the deceased, s128-15 ITAA97. (This is why it is important to keep all receipts and make sure these receipts are passed on with the property).

 

Does it matter if it's a PPOR? Or both IP and PPOR as treated as same for CGT purpose?

 

If it was the deceased main residence at death it could be exempt. If it was your main residence after their death then it won't be exempt, but CGT could be reduced.

 

I regularly need to provide tax opinions to executors and beneficiaries of deceased estates. Many people think all they inherit is tax free. Very wrong.

- Assets inherited will always come with a potential CGT liability. Most post CGT assets are inherited also with an accrued CGT debt. The beneficiary needs to know what this is. (ie Dad owned 2,000 CBA shares from the original float $5.40 cost now worth $74.80). The beneficiary has basically acquired those share as if they cost $5.40 each. What they inherited was not shares worth $149,600. They inherited $149,600 less (say). $22,500 tax = $127,100. And you maybe surprised how many beneficiaries immediately sell the shares and pay-off their home loan to then find out about the tax. (They read somewhere incorrectly you acquire at the market value at the date of death)

- Superannuation....When the executor pulls the estate together and the deceased had super then a portion of their super will pass indirectly through to beneficiaries. Generally only young children and the spouse of the deceased wont be taxed on this. Adult kids and general beneficiaries may have to pay tax on their share. !!

- Timing issues. CGT is triggered when deceased assets are sold. The executor doesn't have to sell the assets. The assets can be transferred inspecie to beneficiaries and this defers the taxing point. I have seen way too many executors who think that they must sell everything and distribute cash.

There are loads of estate and tax planning opportunities
- Prior to death (Yes even on the death bed!!) One golden one for those who have decent share portfolios is to look at their carried forward CGT losses. On death this is lost. So sell some profitable shares before death and use it up. It can pay for the funeral or hospital care.
- After death choices by the executor/s... What to sell, keep etc. Timing - Split CGT profits over two financial years maybe ??
- Choices by beneficiaries

And its frightening how many lawyers don't know the tax issues well so the beneficiaries are disadvantaged. I'm often asked by lawyers who know enough to ask for guidance.

 

Also gifting money etc may affect your status for a pension if you give away more than $?? to become eligible.

 

PPOR property purchased after 85 but before 96 inherited by beneficiary. Sold within 24 months. It was not income producing in that 24 month period by the beneficiary. CGT?

 

No.

 

Thanks for clarification Terry.

 

If it was the deceased's home up until death = No. There can be complications if they enter aged care / hospital care / hospice etc and its been rented to help pay medical bills etc.

 

Is the issue here the fact that it the property is income producing? Assume no income at any stage. Deceased was in care last few years till death. Home vacant.

 

Not really but partly - https://www.ato.gov.au/General/Capi...s-and-deceased-estates/Inheriting-a-dwelling/

Two pathways.
1. Acquired after 20/9/1985
2. Acquired before 20/9/1985

Explained here : https://www.ato.gov.au/General/Capi...ng-a-dwelling/?page=4#Non_main_residence_days

As the home is a pre-CGT asset there is no need to calculate a partial exemption.

The two year rule for disposal also has three tests which allow non-residence days to be ignored ie not being used to produce income at time of death. So if it was rented out the two year rule can leave a tax issue for beneficiaries. The MRE continuation is also available and explained. ie indefinite / 6 years.

 

Is there a way around that? If a parent was to pay $300/week onto their child's mortgage for their last 5 years of work leading up to retirement will it definitely affect their status for the pension or is there something that can be done to avoid that? Maybe the parent could withdraw that $300 a week (Not $300 every week, but irregular amounts here and there that averages to $300 a week) and hand it over to the son/daughter in cash and then they deposit it onto their mortgage?

 

The parent could spend their money

 

These links no longer work. Try these new ones:

Authorisation Number: 1011415916052 Legal Database


Authorisation Number: 1011370948576
Legal Database


Authorisation Number: 1011349176699
Legal Database

 

Thanks for providing these updated ATO links Terry.

Is there a limit on how much money can be gifted (eg assist paying school fees, but not for any income producing purpose) without triggering tax implications for the gifter or recipient?

No age pension being received by gifter.

 

No limits on gifting
But there could be social security impacts