The amount of people that come to me and ask about gift tax is insane. In some jurisdictions there’s gift tax. We used to have death taxes in Australia. So there’s a lot of ambiguity about what taxes relate to providing gifts.
Here’s the key: There is no gift tax…if it’s purely a gift.
What’s a gift?
A gift is merely that – a gift.
A lot of parents from overseas want to give their child some money to help them out with a house. Or some grandparents sold their property and they give their grandkids the money. It’s a gift.
Some parents are gifting their child who’s studying in Australia $1,000 a week to cover their rent and study. That’s a gift as well.
So anything to do with giving people money that’s not related to them performing a service or them being involved in some income producing activity is merely a gift.
The difference between a gift and a non-gift is…
…around this thing called a nexus.
Is there a tie between a business or a work activity and the gift?
Is there a tie between a rental property and the gift?
Sometimes parents should be getting $1,000 a week on rent. They let their child rent the apartment for $200 a week. That is not a gift. That is actually payable. And it’s not payable at $200, it’s payable at $1,000.
Technically, they’re gifting the made $1,000 every week, because the rent is only 200 instead of a grand. They would have to pay tax on the full $1,000. It’s not a gift. That’s in relation to an investment or something that’s going to earn income.
The question that always comes back is: Why were you given this? If it was purely based on you wanting to help someone out, there is no gift tax.
Gifts vs Centrelink
Another often asked question is about gifts and centrelink.
I’m not going to profess to know all the rules and regulations around centrelink. But what I can tell you is this…
There’s a certain limit of money you’re allowed to have before they cut your centrelink benefits.
Let’s call it $600,000. I’ve got $1,000,000, so I’ll give $100,000 to each of my four kids. And then I’ll only have $600,000 left and I’ll get the full benefits.
That’s not the case. Centrelink recognised that you’re going to give away some money. They will still use part of that money in the calculation over the next several years. This isn’t the exact number.
Even though you’ve given $400,000 away, it will take 8 years for that to be producing the amount of assets you have to come into your Centrelink and understand how much you get paid.