What You Need to Know About Gifting Before or During Retirement
With thousands of clients in or nearing retirement, Bradley & Bray Lawyers is often asked for advice about the implications of gifting to help their family. Whether it’s assisting a child with a house deposit or providing an early inheritance, providing a financial leg-up to loved ones can be a rewarding experience. However, moving a significant sum of gift money or transferring an asset is never as simple as you might expect. Even though your intention is purely generosity, you need to understand the formal tax implications of gifting money in Australia. It’s also vital to be across Centrelink gifting rules which can significantly impact your retirement security.
We’re here to unpack this complex topic. This blog can give you a good start in making a well-informed decision about gifting.
The Great Australian Gift Tax Myth
Let’s start with the most common question we are asked: Is there a gift tax in Australia?
The short answer is no, there is no specific gift tax in Australia.
Unlike many other countries that impose an inheritance tax for lifetime gifts, Australia’s tax system does not subject the recipient of a gift to a direct tax. If your parents gift money to you, you don’t have to declare that monetary gift to the ATO, as it is not considered taxable income.
It’s also worth noting that there is technically no ATO limit on how much money a family member can gift you - from a pure tax perspective.
But... Tax Can Still Apply to the Giver!
While the person receiving the money or asset usually doesn’t pay a direct tax on the gift itself, the giver might face tax consequences, especially when dealing with assets. This is where you need to be cautious.
Capital Gains Tax (CGT) on Gifted Property and Assets
Is there a capital gains tax on gifted property in Australia? The answer is yes, for the giver.
If you are gifting money, the tax implications are simple; no CGT applies. However, if you are transferring assets, such as shares, an investment property, or even a holiday home, the ATO will treat this transfer as a “deemed disposal” or a sale at market value.
The Giver’s Liability: If you gift an asset that has increased in value since you acquired it (gifted property or shares), you will likely trigger a Capital Gains Tax (CGT) event, unless the asset was acquired by you before 20 September 1985 (a pre-CGT asset). For assets acquired after that date, the ATO treats the transfer as a sale. The ATO calculates CGT based on the asset’s current market value at the time of the transfer. This capital gain is then added to your taxable income for the financial year, and you, the giver, are responsible for paying the tax on gifts.
Example: You bought an investment property in 2015 for $500,000. It is now valued at $1,000,000 when you gift it to your child. The ATO treats it as you selling it for $1,000,000, resulting in a $500,000 capital gain (before any applicable discounts).
The Recipient’s Future Liability: The recipient acquires the asset with a “cost base” equal to the market value at the time of the gift. Crucially, even if the asset was pre-CGT exempt for the giver, the gift makes it a post-CGT asset for the recipient. They will only pay CGT when they eventually sell the asset (on any growth from that point forward).
Don’t Forget State Transfer Duty (Stamp Duty)
While the ATO does not impose a gift tax, every Australian State and Territory government levies Transfer Duty (commonly known as Stamp Duty) on the transfer of real estate.
Who Pays? The recipient of the property is generally liable for this duty.
How is it calculated? Duty is calculated on the market value of the property at the time of the gift, even if no money is exchanged. This cost can easily run into the tens of thousands of dollars.
Are there Exemptions? Exemptions are limited and typically apply only to transfers between legally married or de facto spouses of their main residence, or transfers resulting from a relationship breakdown. Property transfers to a child do not generally qualify for an exemption.
Income from Gifted Cash
If the gifted money is large and is invested by the recipient (e.g., placed in a high-interest savings account or used to buy income-generating shares), any interest or dividends earned from that money will be considered taxable income for the recipient.
Centrelink Gifting Rules & Your Retirement Security
Do you receive or plan to apply for the Age Pension or other Centrelink benefits? The most significant danger zone in the gifting of money is Centrelink’s rules.
Centrelink imposes strict limits, often called the “gifting-free area.” Exceeding these limits can result in a loss of, or reduction to, your Age Pension payments for five years.
Key Centrelink Gifting Rules You Must Follow
Here is a simple breakdown of the current Centrelink gifting rules:
Annual Limit: You can gift up to $10,000 in one financial year without penalty.
Five-Year Limit: The total amount you can gift over five consecutive financial years is capped at $30,000.
The “Deprivation” Rule
If you gift more than the allowable limit (say, $15,000 in one year), the excess amount ($5,000 in this example) is treated as a “deprived asset.”
Importantly, this deprived asset is counted by Centrelink under both the Asset Test and the Income Test for five years from the date you made the gift.
This means that while the money is gone from your bank account and is now in your children’s hands, Centrelink treats it as if you still own it. This can reduce your pension amount or, in some cases, make you ineligible for the pension altogether. This is the government’s way of ensuring people don’t deliberately divest themselves of assets simply to qualify for a higher pension.
Tip: If you are a pensioner, you’re probably wondering how much you can gift to family while keeping your entitlements intact. Sticking to the $10,000 per year and $30,000 over five years is critical. You can use a Centrelink gifting calculator or seek professional financial advice to model the impact.
How Does Centrelink Know?
You have a legal obligation to tell Centrelink about any gift you make if you are receiving benefits.
How does Centrelink know if you gift money in Australia?
Self-Reporting: You must report the gift within 14 days. Failure to do so can lead to an overpayment debt.
Data Matching: Centrelink regularly conducts data matching with other government agencies, including the ATO, and reviews financial records. They will compare your reported assets and bank movements over time.
Protecting Your Intentions: Legal Documentation
At Bradley & Bray Lawyers, we strongly advise clients who are making a substantial gift of money to consider the legal implications beyond just tax and Centrelink.
The Risk of the Gift Being Part of a Shared Property Pool
When you gift a large sum to a child (e.g., a $100,000 deposit for a house), that money can become part of the shared property pool if your child separates or divorces their partner in the future. In other words, half of your gift could end up going to an ex-partner, even if that was not your intention.
The Solicitor’s Solution: Loan Agreements
To protect your family’s wealth, the best approach is often to formalise the financial support as a structured loan, rather than an outright gift.
A formal, legally binding loan agreement prepared by a solicitor clearly documents the sum of money, the purpose, and the understanding that it is a debt owed to you.
In the event of a dispute, a properly documented loan stands a much better chance of being treated as a legitimate debt against the property pool, reducing the amount available for division between the separating couple.
Your Next Step
Gifting is a generous act, but the rules are complex and the potential consequences, particularly for your Age Pension eligibility, are too significant to ignore. If you are on the Sunshine Coast and considering gifting a large sum of money before or during retirement, don’t leave your financial security to chance.
At Bradley & Bray Lawyers, we provide the professional legal services you need for your personal matters. We offer personalised advice and assistance in:
Wills and Estate Planning: Structuring your financial affairs to ensure your gifts align with your final wishes.
Property Law and Conveyancing: Dealing with the legal transfer of assets and managing CGT implications.
Formal Loan Documentation: Protecting significant financial transfers from future disputes.
Contact our team today to book a consultation. Let’s talk about how you can safely and strategically support your family without compromising your own retirement.
Disclaimer: This article is general in nature and does not constitute legal advice. If you require legal advice in relation to your personal circumstances, you must formally engage our firm, or another firm to provide legal advice in relation to your matter. Bradley & Bray lawyers take no responsibility for any use of the information provided in this article.
