Gifting assets to your children: Here’s how tax applies
Written and accurate as at: Jan 13, 2025 Current Stats & Facts
Thinking about gifting assets to your children? You might be hoping to give them a leg-up in life, or you might be in the middle of estate planning and looking to reduce the chance of conflicts breaking out after you pass away.
Whatever the reason, it’s common for parents to give cash, cars, and even shares and property to their children. But how tax is applied — and who it’s applied to — differs depending on the asset type being dealt with. Here are a few things you should know before making any moves.
Cash and cars
Assuming you’re on solid financial footing, you might still be offering cash to your kids well into their adult years. That might look like the occasional gift to help with groceries and rent, or it might be a much larger lump sum to help them purchase their first home.
Fortunately, your children won’t be expected to declare these amounts come tax time. The ATO makes it clear that recipients don’t have to pay tax on cash gifts, no matter how large they are — so long as you can prove it’s indeed a gift.
Your child won’t have to worry when receiving a car either, as these are exempt from capital gains tax, but they might have to pay a small fee to transfer the registration of the vehicle to their name. This typically must be done within 14 days of the car changing hands, otherwise a late fee will apply.
Shares
Here’s where things start to get a bit tricky. When you transfer shares to your child, it triggers a capital gains tax (CGT) event. This is despite the fact the shares are a gift and you don’t actually stand to gain any money.
To understand why, we need to consider the principle of ‘arm’s length.’ Parties are said to be engaging with one another at arm’s length if they’re unrelated and neither is exercising control over the other.
When the two people in a transaction are family members — and can’t be said to be dealing with one another at arm’s length — the ATO feels it has to pay extra attention in case someone is trying to offload assets without paying the appropriate amount of tax.
Because of this, the transaction will be treated as if you — the giver — received the market value of the asset from the person receiving it. That means if the value of your shares has gone up, you’ll have to declare the ‘profit’ in your tax return for that financial year.1
Having to pay tax on non-existent profit can be frustrating, but there are things you might be able to do to minimise how much you owe.
For starters, if you have shares that aren’t performing well you might be able to sell them to offset the capital gain (or carry forward capital losses from previous years assuming you haven’t done so already). There’s also the CGT discount, which lets you reduce your capital gain by 50% so long as you’ve held an asset for at least 12 months.
Property
Similar rules apply when transferring property, in that a CGT event is triggered and you’ll be deemed to have received the market value of the property. But things are arguably a bit complicated when calculating how much tax you’ll owe.
Because the market value of your property isn’t immediately apparent, you’ll need to arrange to have it valued by a professional ahead of time. This will give the ATO confidence you haven’t undervalued your property to try to lower your tax bill.
There are, however, legal ways to minimise your tax burden. These include factoring in your property’s cost base (that is, the cost of acquiring, maintaining, and disposing of it). And as with shares, you might be able to benefit from the CGT discount if the property has been in your hands for at least a year.
It’s also worth mentioning that the obligations don’t just run one way — your child might also have to pay transfer duty, which can cost tens of thousands of dollars depending on how much the property is worth.
Does giving away assets have any implications for Centrelink?
If you receive the Age Pension, whether or not it’s affected depends on how much you intend to give away. Under current rules, you’re allowed to gift up to $10,000 in a single financial year and up to $30,000 over five financial years.
Any amounts that exceed this ‘gifting free area’ may be included in your income and assets test, potentially lowering how much you’re eligible to receive.
In the end, you might decide it’s easier to transfer any assets upon your death. This can help you avoid CGT, as well as take the hassle of dealing with stamp duty off your child’s plate. For a rundown of the ins and outs of transferring assets, consider speaking to a financial adviser, tax expert or lawyer.
References
1 Australian Taxation Office
