As you may have read in the media recently, the ‘Great Wealth Transfer’ is expected to represent a significant movement of trillions of dollars to younger generations over the next couple of decades.

Opportunity for gifting

Australia’s lack of estate or death taxes offers a unique opportunity for parents and grandparents to transfer wealth to their children without the heavy tax burdens seen in other countries. Whether it’s helping with a home deposit, paying for education, debt reduction, or simply offering financial support, gifting money can be a powerful way to assist the next generation.

The rules in Australia

Unlike in many jurisdictions, cash gifts in Australia are generally not considered taxable income for the recipient. This means your children won’t need to declare the funds to the Australian Taxation Office (ATO), and you won’t face gift tax liabilities. Gifting can however have adverse effects for those receiving Centrelink benefits, so this needs to be reviewed before making gifting decisions.

Other risks to consider

Beyond government benefits, there are other risks to consider. If you gift money to a child who is in a relationship, and that relationship ends, the funds may be considered part of the couple’s shared assets. This could result in some or all of the gift being lost in a property settlement. In such cases, lending money with formal documentation may offer more protection than gifting.

Additionally, if your financial affairs involve trusts or superannuation, there may be opportunities to achieve some tax benefits from your generosity. For example, gifted funds might occur by way of trust distributions or tax-free superannuation withdrawals. Depending on your family’s circumstances, these methods can result in tax savings.

Seek advice early

Ultimately, while Australia’s tax system makes gifting relatively straightforward, it’s not without its pitfalls. Before making any significant financial gifts, especially those intended to support property purchases or long-term investments, it’s wise to seek professional advice. This will help you navigate the rules, protect your interests, and ensure your generosity has the intended impact.

Contact Pilot

If you would like to discuss any of the above, contact Murray Howlett or your Pilot advisor on (07) 3023 1300.