Ten things to know before gifting wealth

Imagine you make an initial investment of $1,000 in a long-term, high-return investment. Each year you add an additional $1,000. After 10 years, your investment could be worth much more. 

For example, a total of $11,000 invested in this way in a high growth investment option at 8.78% per annum* could have delivered more than $17,000 in total after 10 years. 

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One of the most powerful gifts you can give yourself is a contribution towards your long-term financial wellbeing. If you won’t need to withdraw your money before you retire, super is one of the most tax-effective long-term investments there is.

Learn more about the types of super contributions you can make. 

Helping children into the property market is one of the most common forms of financial support. A timely gift early in life could mean a significant boost to your child’s financial situation in the long term. Popular gifts that deliver a financial benefit include:

• Free rent.
• Covering living costs.
• A new car or education support.
• A contribution towards a house deposit.

Parents often worry about financial gifts to a child being lost in the event of a divorce. But there are steps you can take to help protect them. These may include, among other strategies:

●  Lending instead of gifting the money under an arrangement that involves signatures and a repayment schedule.
 

●  Establishing a trust.

One in five Australians (23%) keeps at least some of their wealth in a family trust^. A trust can own property, for example, and protect funds for future generations.

Seek professional legal advice if you’re considering these strategies. 

If you’re 62 or older and may apply for the Age Pension within five years – or if you’re already receiving government Age Pension payments – gifting may affect these.

Centrelink rules mean that gifts above $10,000 in a single year (or $30,000 over five years) are counted as your assets for both assets and income test purposes for five years. This applies to money, property transfers, and even forgiving loans – and, depending on your financial situation, it could affect your eligibility or lower your Age Pension payment.

Learn more about the Age Pension and Centrelink’s rules on gifting.    

You can generally give any amount of money as a gift in Australia without the recipient paying tax on it.

However, if you gift an asset, such as shares or property, it may trigger a Capital Gains Tax event. This is when you need to report capital gains and capital losses in your tax return.

Transferring assets for less than market value may also have tax consequences, as the Australian Tax Office will generally treat it as though it was sold at market rates on the day it was transferred.

For individual taxpayers who have owned an asset for 12 months or more, there is a CGT discount of 50%, meaning you pay tax on only half the net capital gain on that asset. 

Learn more about ATO rules on gifting and consider consulting a tax professional.

• Bequeathing wealth, or inheriting it, can create tension if expectations aren’t clear. Common problems include:
• Unequal gifts between siblings.
• Blended family dynamics.
• Business or farm succession.
• Inheritance timing.

Making a valid will, making your wishes known if you’re leaving wealth to family members, and documenting agreements between family members may help prevent disputes later.

It may help to speak to a financial adviser or a lawyer first.

Most people expect to use most of their super after they retire. To gift any leftover super money, it’s important to nominate a beneficiary.

Under current super and pension rules, a beneficiary can only be a dependant or personal legal representative.

Depending on who your super is paid to – and how they receive the money – there may be taxes involved.

Learn more

It may feel good to gift money or investments this festive season but make sure you can maintain your lifestyle and cover your expenses before making significant gifts.

Our retirement consultants can provide general advice or connect you with a financial advice option to suit your situation.  

The rules around gifting, tax and estate planning are complex. Professional advice can help you:

• avoid unintended Centrelink impacts,
• minimise tax,
• protect family relationships, and
• structure gifts for the long-term.

Our trained guidance consultants can help you find the right advice solution for your needs.