Navigating the ATO's Gift and Inheritance Tax Landscape
Navigating the complexities of the Australian Taxation Office’s regulations on gifts and inheritance can feel like untangling a web of financial jargon. But understanding these rules is essential for anyone looking to manage their wealth effectively and legally. Imagine inheriting a beautiful beachside property or receiving a generous gift of stocks from a loved one — only to find yourself blindsided by unexpected tax obligations. In this guide, we’ll unravel the intricacies of the ATO’s stance on inheritance and gifts, helping you make informed decisions and avoid costly surprises. Whether you’re planning your estate or receiving a family heirloom, knowing the tax implications can save you both money and stress. Let’s dive into the essential details you need to know to keep your financial legacy intact —
In Australia, gifts and inheritance are generally not considered income and don’t require you to pay any Australian taxes. But what exactly defines a gift?
The criteria of a gift are as follows —
There is a transfer of money, goods or particular assets (be careful here though, some asset transfers are unavoidably taxable - see below).
The transfer is made voluntarily.
The donor does not expect anything in return.
The donor does not materially benefit.
If your gift fits that criteria, then there’s no tax whatsoever that needs to be paid on it. And the best part? There’s no limit on how much money you can give or receive as a gift.
Additionally, if the money is a one-off gift, the ATO doesn’t scrutinise it for tax purposes, and you won’t need to provide proof unless they ask for it. If they do, you’ll need to get a letter or other written evidence from the gift giver stating that the money is a gift (normally called a “Deed of Gift”). Easy.
Gift money does not form part of your assessable income and you don’t need to declare it, regardless of the amount. So, let’s say your family wants to give you some money to put towards a house deposit. That’s fine, it’s tax-free. However, if you do then make money off of that house deposit, such as bank interest, then this would become part of your assessable income.
That said, there are some occasions where tax may be payable or capital gains tax (CGT) may apply. For instance, this counts when gifting property, shares, or crypto assets, or when receiving money or an asset from a non-resident trust.
If you were to gift an asset, like a house, the ATO would still consider that transaction the same as if you were selling the house, which means CGT would still apply. If you’re entitled to the CGT main residence exemption, it still applies. If you’re not entitled to the CGT main residence exemption, or are only entitled to a partial exemption, you may be liable for tax.
Curious to learn more about Capital Gains Tax? Read up on capital gains tax withholding on our blog here.
Shares and crypto assets are similar to property, as they’re known as capital assets.
If you’ve been gifted shares or cryptocurrency assets, you —
Only pay tax on any income produced by the shares or cryptocurrency assets.
May be liable for tax when/if you dispose of the shares or cryptocurrency assets later.
But if you’re the one gifting someone shares or cryptocurrency assets, the ATO considers that transaction the same as if you are selling the asset, and you may be liable for tax.
If you are the inheritor of shares or cryptocurrency assets, you
Don’t pay tax at the time of receiving them.
Are liable to pay tax on any income produced by them.
May be liable for CGT when/if you dispose of the shares or cryptocurrency assets later.
Speaking of inheritance, if you were to inherit money or assets (such as jewellery or property), you do not have to declare it unless —
The assets are left to tax-advantaged entities such as charities, or to a foreign resident.
You inherited a dwelling from a foreign resident.
With that being said, once you’ve attained ownership of the inheritance, you will have to pay tax on any income earned by it (such as bank interest or rental income). You could also be liable for tax if you dispose of an inherited asset later on.
If your inheritance is super from the deceased’s superannuation fund, it’s called a superannuation death benefit. The superannuation fund trustee will inform you if tax is payable, and if the tax will be deducted from the superannuation death benefit.
Navigating the in’s and out’s of gifts and inheritance in the eyes of the ATO can be tricky, with nuances galore to weave through. Everyone’s situations are different, with a vast array of complexities that you may not know how to traverse on your own. FRE.DM Wealth can be an invaluable resource to ensure you don’t get caught up in tax implications through gifting or inheriting money and assets. Reach out to us today to chat about your situation and how we can steer you through your options with peace of mind and fewer tax implications.
