When receiving money through a gift or inheritance, many people wonder whether they are required to pay tax on it. The answer is it depends. Let’s explore how gifted money and inheritance are treated for tax purposes in Australia.
Gifted Money
In Australia, gifts are generally not considered taxable. If someone gives you money as a gift, you are not required to declare it in your tax return. However, there are some important considerations:
- Giver’s Intent: The gift must be genuine and not a disguised payment for services or goods. For example, if you are sent income from overseas for work that you have undertaken, then it would be dangerous to advise the ATO (Australian Taxation Office) that, for example, it is a gift from a relative. The ATO, through AI and other means, can track where a payment originates from.
- Thresholds and Reporting: While there is no specific tax on receiving a gift, significant transactions may need to be reported to the Australian Taxation Office (ATO) for transparency. This is normally the case for gifts in excess of $10,000.
- Large Gifts: If you receive a large gift, it’s essential to ensure that the funds comply with anti-money laundering laws. The ATO may require proof that the money is a gift and not income or proceeds from an illegal activity (e.g. drug trafficking).
Inheritance
While there is no inheritance tax as such in Australia, the laws around inheritance can still be quite complex.
- Tax on the Estate: Before an inheritance is distributed, the estate may be liable for taxes, such as capital gains tax (CGT) on certain assets if they are sold. For example, if the estate sells an investment property before distributing the proceeds, CGT may apply. Best to contact your tax accountant Melbourne who can run through the calculations with you.
- Capital Gains Tax for Beneficiaries: While the inheritance itself is not taxed, the recipient may face CGT in the future if they sell an inherited asset. For example:
- If you inherit a property that was the deceased’s main residence, it may be exempt from CGT if sold within two years. In some instances you can sell the property after 2 years without paying CGT. Again, best to contact your accountant Melbourne for further information.
- If you inherit shares or an investment property, CGT will generally apply at the time you sell the asset (provided the inherited shares or investment property were originally purchased by the deceased after 19 September 1985).
3. Superannuation Death Benefits: If you inherit superannuation funds, tax may apply depending on your relationship to the deceased and whether the funds were originally taxed in the super fund. For example, if you receive super money and you are a dependant of the deceased, then you are likely to escape paying tax on this money. This area can be quite complex so please contact your accountant Melbourne for further guidance.
Key Takeaways
- Gifted money is not taxed as income in Australia, but large gifts may require documentation.
- Inheritances are tax-free, but taxes can apply to future transactions involving inherited assets.
- Always keep detailed records of gifts and inheritances to keep the ATO happy. Your tax accountant Melbourne should have templates and examples of how you need to record the information,
When to Seek Professional Advice
Tax laws can be complex, particularly when dealing with large sums of money or valuable assets. Consulting with a tax accountant Melbourne can help you understand your obligations and plan effectively. Please don’t hesitate to contact Nobel Thomas if you have any questions.
