Ask Noel: what is the tax payable on a gift?

I cannot find a satisfactory answer from the Tax Office's website or from my phone call to the ATO help desk regarding the tax implications of giving a lump sum of money as a gift to my son to help him buy his first home.

I am 64 and would like to withdraw $150,000 from my super fund and give it to my son. My question is whether the money should be included in his taxable income.

The ATO website and ATO phone help desk say "gift money" is tax free but it depends on how large the amount is! It fails to say how much a "large amount" is nor does it specify any conditions that would require gifted money to pay tax.

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There is no gift duty in Australia, and a lump sum withdrawn from your superannuation and given to your son to use as a house deposit would not attract any form of tax to you or him.

However, if you are thinking about applying for the age pension within the next five years, any money given away would be treated as a deemed asset by Centrelink and could reduce your ability to get a pension. The special rules you refer to would only be triggered if the transaction was such that the Tax Office regarded it as suspicious and an attempt to evade tax. I cannot see this happening in the situation you mention.

I am wondering whether someone is entitled to a supplement or part supplement for rent if they own a part of a dwelling where they reside. They would still be paying an equivalent percentage of rent to another landlord.

A Department of Human Services spokesman tells me that Rent Assistance may be paid to a person who receives an income support payment from the Department of Human Services or receives more than the base rate of Family Tax Benefit.

However, when a person owns or part-owns their principal home, they are assessed as a homeowner and are not entitled to Rent Assistance if they pay rent to another part owner.

My parents and I own an investment property in equal shares, as tenants in common. They would like to give their share of the property to me, and I would take over the mortgage. Would this be a capital gains tax (CGT) event for which we all have to pay tax? And would we have to refinance the mortgage to do this?

If they give the property to you, it will certainly trigger a CGT event for them, and they would be liable for capital gains tax. The value for CGT purposes will be current market value at the date of transfer. You would need to ask your accountant to do the sums because only 50 per cent of the property is being transferred, and there is a 50 per cent discount on the capital gains provided the property has been held for more than a year. The amount of CGT they would have to pay would depend on your taxable income in the year of transfer. You would need to liaise with the lender to find out what the requirements would be regarding a refinance. Just keep in mind that if your parents are considering applying for the age pension within five years, the amount of the property effectively given to you would be treated as a deprived asset.

I am 33 and have recently taken out a $650,000 mortgage at 4.14 per cent on a property purchased for $1,080,000. Attached to the mortgage is an offset account in which I usually keep a balance of $20,000. I also have a share portfolio worth about $40,000 made up of mostly blue-chip stocks. Would I be best to sell down my share portfolio and place the proceeds on to my mortgage or retain the stocks? Obviously, whatever the market does over the course of the loan will ultimately determine what is best but working on historical averages could you point me in the right direction?

You should be trying to reduce your non-deductible debt, while maximising your deductible debt. Therefore, if capital gains tax is not going to be a big issue for you, you might think about taking advice to sell the shares, place the proceeds in the offset account to effectively reduce your non-deductible debt, and then take a loan against the property for say $100,000 of quality managed funds. All the interest on this loan would be tax deductible. I prefer managed funds because the money would be spread over a range of stock with full-time professionals making the decisions. Over the long term, I would hope you could achieve about 9 per cent which would include both income and growth.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions.

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