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December 11, 2019 by Venture

Unwrapping the joys and pitfalls of giving

Christmas is a time of giving, when thoughts turn to family and to helping those less fortunate. To gift in a meaningful way that maximises the benefits, it’s important to consider tax. 

While Australia doesn’t have a gift tax, there are tax considerations nonetheless for both the giver and the recipient.

Buying a toy for your grandchild is one thing but many parents wish to help their adult children or grandchildren with more substantial gifts such as a home deposit or a car. If you receive a Centrelink age pension now or are within five years of retiring, that “gift” will be counted as an asset and could affect your pension.

Helping family

Gifting with the potential to impact your Age Pension entitlements comes in many guises. It might be donating 10% of your salary to your church, buying a car for your daughter or selling her a rental property you own for less than market value.

If you gift more than $10,000 a year or a total of $30,000 over a five year period, then the excess will be counted as an asset by Centrelink for five years, when it assesses your eligibility for an aged pension.

Your gift won’t just count in the assets test but deeming may also be applied under the income test. Deeming rules are used to work out how much income you earn from your financial assets, irrespective of their actual earnings.i

How do the gifting rules work?

Say you lend your daughter $50,000 to buy a home two years before you retire. Centrelink would view the first $10,000 as an allowable gift and it would make no difference to your situation. However, it would treat the remaining $40,000 as a deprived asset subject to the gifting rules.

What’s worse, if your daughter were to repay $40,000 in two years, then not only would the original $40,000 be counted in the assets test and deemed under the income test but now the $40,000 she repays would be added to this sum.

Can you afford to give?

Clearly, it’s wonderful to give with a warm heart and help relatives when they need it and you can see the joy it brings. Even so, you need to be very mindful of the repercussions for your own wellbeing.

It may be that you don’t qualify for a pension on retirement, but what if you give away a sizeable sum and then need to fall back on the pension sooner than anticipated? If the help were needed within five years of your gift giving, then the amount would be subject to the gifting rules.

Tax implications for children

It’s not just the giver who can run into problems. You need to be mindful of any repercussions for the recipient of your generosity. It’s natural to want to give money to your grandchildren, but there may be tax implications if they’re under 16.

Depending on your circumstances, we may be able to help you find a more tax friendly investment to suit the needs of both you and your young family members.

Giving to charity

Giving to charity is often top of mind at Christmas too. Any donation over $2 is tax deductible but this has no bearing if you are retired and not paying tax. Of course, the reason for giving should never be predicated on tax considerations, although it may be handy.

A tax deduction only applies if the charity is a deductible gift recipient (DGR) endorsed by the Australian Taxation Office (ATO) or listed by name in the tax law, so you need to check that the charity has DGR endorsement.

Giving to those in need or to those you love can be a rewarding experience no matter what time of year, but it’s important to understand the implications for both giver and receiver.

If you would like to know more about how gift giving will impact on your financial wellbeing and that of your family, then give us a call on 03 5434 7600.

 

i https://www.humanservices.gov.au/individuals/topics/deeming/29656

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Venture Financial Planning Pty Ltd ABN 62 095 194 559 wholly owns Venture Financial Advisers Pty Ltd ABN 60 648 465 445. Venture Financial Advisers is a Corporate Authorised representative of Count Financial Limited ABN 19 001 974 625 Australian Financial Services Licence Holder Number 227232 ("Count Financial"). Count Wealth Accountants® is a trading name of Count Financial. Count Financial is 85% owned by Count Limited ABN 111 26 990 832 ("Count") of Level 8, 1 Chifley Square, Sydney 2000 NSW and15% owned by Count Member Firm Pty Ltd ACN 633 983 490 of Level 8, 1 Chifley Square, Sydney 2000 NSW. Count is listed on the Australian Stock Exchange. Count Member Firm Pty Ltd is owned by Count Member Firm DT Pty Ltd ACN 633 956 073 which holds the assets under a discretionary trust for certain beneficiaries including potentially some corporate authorised representatives of Count Financial.