In Australia, gifts and inheritances are generally not considered taxable income. This means that if you receive a gift or inheritance, you do not have to declare it on your tax return or pay any Australian tax. However, there are some situations where tax may apply, particularly when assets are involved.
What Qualifies as a Gift?
A gift is defined by the following criteria:
- There is a transfer of money or property.
- The transfer is made voluntarily.
- The donor does not expect anything in return.
- The donor does not materially benefit from the transfer.
If a gift meets these conditions, neither the giver nor the recipient has to pay tax on it. Additionally, there is no limit to the amount of money you can give or receive as a gift.
When Could Tax Apply?
While most gifts and inheritances are not taxed, there are some circumstances where tax obligations arise:
- Gifting Property, Shares, or Crypto Assets: If you gift assets rather than money, Capital Gains Tax (CGT) may apply as if you had sold the asset.
- Receiving Money or Assets from a Non-Resident Trust: If a gift comes from a foreign trust, it may be considered assessable income and subject to tax.
Common Questions About Gifts & Tax
My Parents Want to Give Me Money – Do I Have to Pay Tax?
No. Gifted money is not considered part of your assessable income, regardless of the amount. However, if you deposit the money in a bank account and earn interest, the interest will be taxable.
What If I Receive a Gift from a Family Member Overseas?
In most cases, a gift from a foreign resident is treated the same as one from an Australian resident and is not taxable. However, if the gift is from a foreign trust, it may need to be included in your assessable income.
How Can I Prove That Money I Received Is a Gift?
If the gift is a one-off, it usually won’t be examined for tax purposes. However, if the ATO requests proof, you should obtain a written statement from the giver stating that the money is a gift.
Do I Pay Tax If I Gift Money or an Asset to Someone?
- Money: There are no tax implications for gifting money.
- Assets (e.g., Property, Shares, Crypto Assets): If you gift an asset, it is considered a disposal, and CGT may apply. If the asset was your primary residence and qualifies for the CGT main residence exemption, no CGT is payable. Otherwise, you may have a tax liability.
Will Gifting Money Impact My Government Benefits?
If you or the recipient receive government benefits, gifting money or assets may affect your eligibility. For more information, refer to Services Australia’s ‘Gifting’ topic on their website.
Tax Treatment of Other Gifted Assets
Shares & Crypto Assets
- If you receive shares or crypto assets as a gift, you only pay tax on income they generate (e.g., dividends, staking rewards).
- If you dispose of these assets in the future, CGT may apply.
- If you gift shares or crypto assets, it is treated as a sale, and you may need to pay CGT.
Understanding Inheritances & Tax
Do I Have to Declare an Inheritance?
Generally, inheritances are not taxable. However, you may have tax obligations if:
- The assets are left to a tax-advantaged entity (e.g., charity) or a foreign resident.
- You inherit a dwelling from a foreign resident.
- The inherited asset generates income (e.g., rental property, interest on inherited funds).
- You later sell an inherited asset, which may trigger CGT.
Superannuation Inheritances
If you inherit a super death benefit, the super fund trustee will inform you if any tax applies. Any tax payable will usually be deducted from the benefit before it is distributed.
Recent Tax Case – Cheung v FCT [2024] 1370
Under that Taxation Administration Act, the burden of proof is with the taxpayer – this means as a taxpayer you must prove, on the balance of probabilities, that the ATO is incorrect should they issue amended assessments.
In a recent decision a court held that $33 million received by Cheung from his sister in Vanuatu was a gift. The monies were received over 11 years. During the case Cheung’s sister attended court and the Judge said she gave credible testimony and was a ‘loving sister’. There was also a cultural practice of familial support.
It is expected that the ATO will appeal the decision.
Final Thoughts
Gifting and inheriting assets in Australia is generally tax-free, but certain situations can trigger tax liabilities, particularly with CGT and foreign trust distributions.
As the burden of proof is with the taxpayer to show that receipts are gifts (and not income). To enable the ATO to consider receipts within full context, it is always helpful to have documentation of gift at time of receipt. This could be by way of emails or texts that indicate the nature of the fund transfers. For larger items or significant sums it may be prudent to execute a ‘Deed of Gift’.
If you’re unsure about your obligations, consulting an accountant can help ensure compliance and avoid unexpected tax implications.
