Are Gifts Tax Deductible?
Posted on:
Raffi Pailagian
MBA, BSc, DipFP
Financial Planner / Managing Partner
Are Gifts Tax Deductible?
According to the Tax Office, not all gifts are created equal. Depending on the type of gift, and more specifically, to whom the gift is made, the tax implications of gift giving differ. So if you are thinking about making a gift, either to a family member or a charity and are wondering if it qualifies as a tax deductible gift, read on.
Giving To Family
A question we are asked often is how much are you allowed to gift tax free? The short answer is, as much or as little as you wish, without tax implications.
However, if you are thinking of perhaps helping a child out with a deposit on a house, and are wondering if making a cash gift to a family member is tax deductible, the answer is unfortunately no. To be tax deductible a gift must be made to an endorsed DGR (Deductible Gift Recipient).
What Is A DGR?
A DGR, or Deductible Gift Recipient, is an organisation that is registered to receive tax deductible gifts. Any gift over $2 made to a DGR is tax deductible. DGRs are generally not-for-profit organisations such as charities.
Gifts vs Contributions
If you wish to help a DGR and claim it as a tax deduction there are essentially two ways you can do this, gifts or contributions. The tax department are very specific when it comes to how these two options are treated:[i]
Gift
For Tax purposes a gift must fulfil three criteria:
- it must be made to an endorsed DGR
- it must be a true gift, in that nothing is received in return, including substantial advertising
- it must be money or property such as shares.
If your gift fulfils these criteria, it can be claimed as a tax deduction in the year in which the gift is made.
It is not considered a gift if you have purchased something, like raffle tickets, chocolate, tickets to fundraising events, or membership fees. It is also not considered a gift if you have provided services, such as your time or skills.
Gifts can be claimed as a tax deduction by individuals, companies or trusts. In essence, anyone who pays tax.
Contributions
A contribution is treated differently under tax law, and can only be made by an individual, not a company. When making a contribution you receive material benefit in return for your contribution, a ticket to a fundraising event for instance. Contributions must:
- Be made to an endorsed DGR
- Be made in relation to a registered fundraising event
Are Gifts Taxable Income?
So, what if you have received a gift? Are cash gifts from family members taxable? In general, no, they are not. As long as the gift is made to you for personal reasons, and it is not connected to your income-producing activities, you won’t be taxed.[ii]
However, if you earn interest from that gift, or an income is generated, as with a property that you rent out, the interest or income is considered taxable and will need to be included in your tax return.
Gifts & The Age Pension
If you are on the Age Pension you are entitled, for assessment purposes, to give as much as $10,000 per year as a gift, up to a limit of $30,000 over 5 years, before it affects your pension levels.[iii]
You should also be aware that when you apply for the Pension, or for any age-related financial consideration like nursing home fees, any gift made in the five years prior to your claim will be included in your assessable income. So if you are planning on gifting a large sum, consider doing so well in advance of the need to apply for a pension.
If you would like to know how the giving of gifts will affect your personal situation, Manly Financial Services can help, give us a call on (02) 9976 3388 or contact us through the button below, to find out more.
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