What you need to consider before making a financial gift
Consider tax, age pension entitlements, aged care, estate planning and family dynamics.
There are many reasons why Australians make the decision to make a financial gift for loved ones. Parents may want to help their children with house deposits, grandparents may want to assist with education costs, siblings step in during periods of hardship. There are endless reasons for generosity.
The motivation for financial gifts is rarely a rational assessment of the best use of assets over the long-term. These are often emotional decisions driven by the desire to help a loved one. However, that does not mean that they do not have financial consequences. Financial gifts sit at the intersection of tax law, pension rules, estate planning and family dynamics.
Before writing the cheque or transferring the money, there are several key issues worth considering.
Is it really a gift?
If there is any expectation for the funds to be returned to you at some point in the future, it is not a gift – it is a loan. This distinction matters. Informal family loans can often become a major source of conflict when circumstances change.
If it is a loan, this should be documented clearly, with clear terms for repayment.
Does the relationship between people matter?
Australia does not have a ‘gift’ tax, and recipients generally do not pay income tax simply because they received money. This can create the impression that who you give the money to does not matter.
In practice, the relationship with the recipient can have significant implications. This is not in the eyes of the ATO for tax reasons, but it is for estate planning, family law and government benefits. Below, I run through how the nature of the relationship can change the consequences of a financial gift.
Between spouses or de facto partners
Gifts between spouses or partners are often treated differently from gifts to other family members, especially for estate planning and family law purposes.
From an estate planning perspective, gifts that are given in this capacity are considered a shared financial pool of the relationship. This applies even if it is held in one person’s name. Courts and estate planners may look beyond legal ownership to determine beneficial ownership and intent.
This means that gifting funds to a partner does not necessarily remove the asset from your broader financial position. In the event of death or relationship breakdown, those assets may still be taken into account when determining how property is divided or how an estate is administered.
This is particularly important in second marriages or blended families. Gifting assets to a new partner without estate planning considerations can unintentionally change how wealth is ultimately distributed. It may impact what is distributed to children from a previous relationship.
Gifts to adult children and inheritances
This is one of the most common forms of financial assistance. Gifts that are not properly documented can form a basis for a will contest later in life. If a gift is given early in life, and comprehensive and clear estate planning has not been implemented, it may appear in the will contest.
In some cases, disappointed beneficiaries may argue that earlier gifts were effectively early inheritances, or that they were unfairly disadvantaged. Fairness will be dependent on your family dynamic. Some families are comfortable with unequal support, while others place a high value on equal treatment regardless of circumstances. Although these decisions are not governed by law, they can often have a far greater impact on family dynamics.
Are there tax implications?
There’s no formal gift tax in Australia, but financial gifts can still trigger indirect tax consequences.
If a gift is funded by selling an asset – such as shares, ETFs or property, capital gains tax (CGT) may apply. This tax is not caused by the process of gifting, but the process of selling to create the cash.
Gifting assets directly without liquidating to cash may also trigger CGT. Transferring shares or property to another person is generally treated as if the assets were sold at market value, even if it is not given in cash.
For recipients, future income generated by the gifted assets – for example, dividends from stocks, rent from property, or capital gains, is taxable. This may be beneficial if the recipient is on a lower marginal tax rate in terms of net tax paid. However, it can also impact their own tax position and eligibility for government benefits.
The most common way that assets are received is they are inherited after passing, which have different rules than gifts given before passing. For further details on the implications of inheriting assets, I’ve written an article for inheriting a house and for inheriting shares.
How Centrelink views gifting
If you or your partner receives Centrelink benefits such as the Age Pension, gifting is subject to limits. You can gift up to $10,000 per financial year, or up to $30,000 over a rolling five-year period without affecting your entitlements.
Any amount above these limits is treated as a deprived asset. This means that Centrelink continues to assess the funds given as if you still own it for five years. These rules apply regardless of who receives the gift. The government does not consider the recipient and only considers whether the gift reduces the assets available to support the gift giver.
I can understand that this may seem counterintuitive to many in retirement. Helping family is often not viewed in the same lens as helping others. Helping family feels like an integral part of your living costs – after all, most of the time it is given to children who have been financially dependent on you for a large part of their lives. From a policy perspective, allowing unlimited gifting to close relatives would undermine our welfare system.
The impact on aged care
For older Australians that are receiving aged care, gifting can impact the fees.
Aged care assessments consider income and assets. Gifts made within the past five years may still be counted towards the total. This could increase the fees payable, even if the money has been given away and spent.
Your own financial security
Just like the safety messages on a flight, apply the oxygen mask to yourself before you apply it to others. Your generosity should not come at the expense of financial security. This is particularly true for retirees that are no longer earning a salary or wage.
Before making a significant gift, ensure that it is carefully planned and consider whether you have comfortably funded your own retirement fully. On top of this, ensure that your emergency savings are topped up and can handle unexpected changes to health or to your investments.
Final thoughts
The best gifts are always given with intention. Generosity is best when it is sustainable and informed. Ensure you understand how the gift will interact with tax, any Centrelink entitlements, aged care, estate planning and family dynamics. Always gift with the perspective that that money will not be returned.
The last thing you want is an act of generosity and love to cause unintended consequences and stress.
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