"I have sold shares so that I can gift $60,000 to my daughter and her husband to install a pool for their family. Knowing I will pay tax on my shares, can I transfer $60,000 to them without tax implications for either of us? I am not on a pension and don’t feel I ever will be."
- Ann in Griffith, NSW
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I will start with the first issue, yes you can gift the shares in the way of an off-market transfer which is essentially a private stock transaction that occurs off the share market.
To do this first up, you'll need to work out whether the shares are CHESS sponsored or issuer-sponsored. If you bought the shares through a stockbroker or online trading platform, they're most likely CHESS sponsored, and you'll need to request an off-market transfer form from the broker or platform. There will usually be a transfer fee involved (around $30-$60) but sometimes if you are using the same broker or platform for the shares to go to that fee can sometimes be waived check with the broker or platform.
So that is the easy part. The next issue at hand is tax, and guess what? If you have made an income or a capital gain the taxman wants to be paid and gifting the shares is still considered a way of disposing of the asset and is a CGT event. Now that doesn’t necessarily mean that you will need to pay tax because you may have made a loss or you may even have no income for the year and the capital gain is so low that you fall under the taxable income for the year, but because you said that you know you will pay tax on them, I will assume that you made a capital gain and that you are working and fall within a tax bracket that you need to pay tax each year. If that is the case, what will happen is the day the transfer is done, that is the market value of the shares.
So to work out the capital gain (CG) we would take the amount you paid for them from the amount of the market value of the day that you disposed of them, and that figure would be added to your taxable income for the year unless you held the shares for at least 12 months and then you can half the capital gain for example:
Let’s say you the bought shares for $40,000 5 years ago, gifted them to your daughter today, the value is now $60,000 ($20,000 CG) – CG minus 50% discount is $10,000.
Let’s say your taxable income is $60,000 with the CG, it is now $70,000, CGT that would be owed is $3,450 (MTR of 34.5% Inc Medicare). This is the reason a lot of people end up selling their shares in retirement, to avoid the CGT liability as they will fall under the tax-free threshold (also don’t forget that you will need to pay tax on the dividends for the year as well as it is considered an income).
When your daughter goes to sell the shares, it would be like she bought them for $60,000 on the day you gave them to her and she would need to pay tax on any further increase from that amount onward, not the amount you paid for them because the CGT has already been paid.
Your next issue is that for Centrelink $50,000 will remain as an asset as you have gone over the gifting rule which you are able to gift $10,000 each year with no more than $30,000 in the course of 5 years and anything above the $10,000 will remain an asset for the 5 years. So if you are close to getting a government pension gifting this amount won’t bring you closer in the next 5 years, I know you said you don’t think you will ever get a pension, but it is food for thought.
It sounds like you have already sold the shares though and so much of this is probably you trying to work out if you have done the right thing, which in future the best thing I can say is to go seek personal advice because there are few things I can think of that cannot be considered without knowing all your circumstances and there could be a few strategies that may make it easier for you make gifts like this happen at a reduced cost and that is why it is so important not to make rash decisions without advice.
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