We want to give $500,000 to our daughter and son-in-law. It is our understanding gifts are tax free but the ATO site says it depends on amount, but is not explicit on amount?
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Thanks for your question. It is wonderful that you want to gift to your daughter and son-in-law. Regarding the taxation issue, you are correct. Generally gifts are not considered taxable to either the giver or the receiver. The tax office in limited circumstances may have reasons to tax and as I am unaware of your personal circumstances it would be best to get the advice of a tax adviser to determine your individual tax situation.
You and your partner can give away money and other assets up to any value your chose at any time. There are a number of other things that you should consider though when gifting money. Firstly, before you make the gift, I would recommend that you should carefully consider the impact it will have on your own financial security to ensure that you personally will not be materially impacted, especially in your retirement. It would be best to speak with a financial adviser as to the impact that this may have prior to making the gift to ensure that your own financial security is not impacted. It is good and well helping your children but if it is to you own financial detriment you have to determine whether it is worthwhile
You also never know what the future holds. Your daughter and son-in-law may have a very strong relationship now but the truth of the matter is, that unfortunately, one in three marriages end in divorce. I am sure that you would not like to see half of your generous gift be part of a financial divorce settlement. My advice would be to speak with a solicitor and look at putting in place a loan or mortgage agreement so that if your daughter and son-in-law were to divorce that the monies that you have gifted then get returned to you. Obviously there would be cost involved in setting this up but it is protection against this unfortunate event. The monies could then be gifted back to your daughter to help set herself up financially after the divorce.
You also have not mentioned if there are other siblings involved. If there is this could pose a number of issues whereby the other siblings may not be in receipt of a gift such as this. You may, as a result want to put in place some equalisation via your estate plan to ensure that all your children receive a similar benefit on your passing.
There is no mention whether you are in receipt of any Centrelink benefits or may be in the future but gifting can have a number of implications on a persons’ rate of income support from Centrelink. The gifting rules apply to any gifts made in the 5 years before receiving a pension or allowance, so if you are considering applying in the next five years for Centrelink you need to advise Centrelink of the gift at the time. Both a single person and a couple has a gifting free area of $10,000 per financial year, limited to $30,000 per 5 financial years. If the total of gifts made in a financial year is more than $10,000, the excess will be assessed as a deprived asset. This is called the $10,000 rule. A maximum of $30,000 can be gifted over a rolling period of 5 financial years, but must not exceed $10,000 in any 1 year to avoid deprivation. Only $30,000 of gifting in a 5 year period can be exempted. This is called the $30,000 rule. If you gift more than the allowable amount the amount over the above limits will be assessed as a asset for 5 years from the date of the gift and will also be subject to income deeming provisions, impacting on both the assets and income tests.
All the best.
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