I’m aware of gift tax re cash, but what is the rule re giving property, say a unit as a wedding present to a son. What should I take into account?
Henri in Wollongong, NSW
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Thanks for the question. There are a couple of things to consider when it comes to gifting, so I’ll discuss the points that you may need to think about in this situation, should you wish to gift a unit as a wedding present to your son.
Generally speaking, gifts aren’t considered taxable to either the receiver or the giver. So on the actual gift itself, there is no tax associated, however there are other factor that may be affected, which I’ve outlined below:
Effects on Centrelink aged pension or benefits
Henri, if you are currently receiving any Centrelink benefits, such as the age pension, you will be subject to some gifting limits that will affect the potential amount of aged pension that you receive. At the moment, the gifting limits are:
- Up to $10,000 per financial year
- Up to $30,000 over five consecutive years
Most people think cash, but it’s actually in relation to the value of the gift. That means property, cars, money and shares can all be gifted and included as part of these gifting limits. Essentially, any asset that is assessed under the Centrelink assets test.
The limits allow you to gift up to the above amounts without it effecting your aged pension entitlements.
Now I’ll assume that a unit is likely going to be valued higher than $30,000, meaning that if you chose to do this, you would be going above the limit and if you are receiving Centrelink benefits, your ongoing payments will likely be affected. This means, you would need to communicate this with Centrelink to ensure that your personal details are up to date to confirm you are not receiving any over payments that you may need to pay back in the future.
If however you are a fully self-funded retiree and don’t receive any Centrelink benefits, then there will be no Centrelink effect for you.
Effects on Capital Gains Tax
Once the asset changes hands, this will usually be considered a CGT (capital gains tax) event. This means, it would be treated the same as if you sold the property. If the property value has increased, and a capital gain has occurred (even if no money changes hands), then you may be liable to pay any potential capitals gains tax that could be associated with the property.
Any capital gain will be included as part of your yearly income tax return (less any discounts applicable) and will be taxed at your marginal tax rate.
The actual capital gains will be based on a few factors, such as the date of original purchase, the purchase price, the current valuation and whether the unit is a main residence or an investment property. This can be a touch complex and I’d recommend checking with your tax accountant so that you can ensure any tax associated, is not a surprise.
This also means that the date of transfer will the “purchase date” for your son, and will be the date used for any future potential capital gains tax associated (depending on what the unit is used for).
Be aware that for the purpose of the law, you may not necessarily be gifting the unit just to your son and if your son and his new partner were to split, that gift may form part of the family assets to be split. If you have concerns, you may wish to seek the advice of a solicitor.
As with most things financial, it’s not 100% black and white. When it comes to any complex tax considerations, it’s always money well spent engaging a tax accountant.
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