EDITOR: For some reason the most popular questions asked in the comments of my Australian Personal Tax FAQ are in relation to gifts and whether or not they are taxable. As I am not knowledgeable about this area I asked my accountant friend Andrew from Aussie Tax Time to provide some general guidance on the subject.
GUEST ARTICLE: Hi my name is Andrew, please note that my guest article is intended to give some guidance to the question Are Gifts Taxable? It isn’t personal financial advice and I don’t get into the full legal arguments.
In Australia, as an individual, we are generally taxed by the Australian Taxation Office on income that we receive from providing services i.e. working.
We can also be taxed for our investments such as interest earned in a bank account or Dividends received because we own some shares, these are classed as income. We may also be subject to Capital Gains Tax (CGT). This is a tax on increases in investment Assets such as shares or property.
As a general rule if the Gift is not covered in the above situation then it will not be subject to income tax.
The ATO NEXUS
So what is the test? So there is a great word called NEXUS that the ATO like to use for many things. It means is there a direct link between the gift and the employment (i.e. working) or in the case of the property the gift and the income stream of rent.
In terms of the employment If you get a gift of a car from your employer then the ATO will probably consider there is a sufficient NEXUS between you receiving the gift and your Job.
If your Dad gives you a car for your Birthday then you can be pretty sure it will not be taxable.
You also need to be careful of making a gift payment continuously where it has the perception of Income.
For example you rent your mothers investment house and pay below market rent and then gift her money every month this may be construed as a payment in lieu of rent and hence takes on the feel of Income and will be taxed accordingly.
ATO Cases Related to Gifts
Have a look at these cases to get an idea of the legal background:
Are Gifts Taxable – Case Studies
Here are some examples: all of them assume there is no NEXUS between the gift and employment
- We inherited some money and want to give it to our Son. – No Gift Tax on the gift to the Son
- My Mum gave her sister $139k is their gift tax – No Gift Tax to sister
- Parents giving money from Overseas to buy House – No Gift Tax although there may be rules about bringing in large sums of money to the country
- I won some money and want to give my mate enough to buy a house – Good friend, what is your email….Just Joking – No Gift Tax
- I wish to sell my home and buy a house for each son – No gift Tax and generally if the house was your main residence you probably will not be liable for CGT.
- My daughter has been renting from me for and now I want to sell it to them and give her a portion of the rent she has been paying – Good question and a little complex. OK she has been paying you rent, this is taxable to you. You want to sell the house to them; if you bought this after September 1985 generally you will have to pay CGT. Giving her back some money as a gift – No Gift Tax.
This guest technology review has been written by my friend Andrew from Aussie Tax Time. A CPA Accountant and an associate member of the institute of Company Secretaries (Sydney), with over 18 years experience in a commercial corporate environment, 15 of which were in CFO and/or Board Secretary Positions. Andrew also has more than 20 years experience in public practice accounting services.
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