Whether you're a single person or a couple, the permitted amount is $10,000 in cash and assets over one financial year or $30,000 in cash and assets over five financial years. This is commonly known as the $10k and $30k rule or a 'gifting free area'. Do I have to tell Centrelink?
Gifting free areas
$10,000 in one financial year. $30,000 over 5 financial years - this can't include more than $10,000 in a single financial year.
You first use the annual exclusion to reduce the gift by $16,000 to $100,000. To avoid paying gift tax on the remaining $100,000, you can use an amount equal to the estate tax on $100,000 of your unified credit.
For tax year 2022, the annual gift tax exclusion stands at $16,000 ($32,000 for joint filers). This is up from $15,000 in 2021 ($30,000 for joint filers). This means your parent could give $16,000 to you and any other person in 2022 without triggering a tax.
According to the Australian Taxation Office, monetary gifts from relatives and friends (even from overseas) do not count as assessable income and therefore don't have to be declared by the giver or receiver come tax time – regardless of the amount. There are a few caveats, however.
The Annual Gift Limits
In 2021, the annual gifting limit is $15,000 but that amount can change from year to year. Many people assume that as long as their gifts are below that dollar threshold that no gift tax has to be paid but if they gift over that annual limit then someone has to pay gift tax.
To do this, you've got to use IRS Form 709 when filing your annual tax return. You need to complete and submit Form 709 for any year that you make a taxable gift. Sending in the form doesn't necessarily mean you'll have to pay anything on the gift—it's just the form you'll need to use to declare the gift.
You Don't Have to Report Cash Gifts of up to $16,000 a Year
Cash gifts can be subject to tax rates that range from 18% to 40% depending on the size of the gift. The person making the gift must pay the tax but thanks to annual and lifetime exclusions, most people will never have to pay a gift tax.
Reducing potential taxes with gifts
For smaller gifts, the IRS rules for 2022 allow any individual to gift up to $16,000 per year to any recipient without having to consider the potential impact of a taxable gift. A married couple may give up to $32,000 to any individual.
Like we've mentioned before, the annual exclusion limit (the cap on tax-free gifts) is a whopping $16,000 per person per year for 2022 (it's $17,000 for gifts made in 2023). So, even if you do give outrageously, you wouldn't have to file a gift tax return unless you went over those limits.
Lifetime Gift Tax Limits
Most taxpayers won't ever pay gift tax because the IRS allows you to gift up to $12.06 million (as of 2022) over your lifetime without having to pay gift tax.
If you are receiving the Age Pension or other benefits from the government, there is a limit to the amount you can gift your children. Whether you're a single person or a couple, the permitted amount is $10,000 in cash and assets over one financial year or $30,000 in cash and assets over five financial years.
Under Australian law, you can give real estate to a relative as an outright gift. When giving ownership to a third party, there is no exchange of money. The gifting process involves filing a Transfer of Land with your title office. Filing a gift deed may also be necessary.
Currently, you can give any number of people up to $16,000 each in a single year without incurring a taxable gift ($32,000 for spouses "splitting" gifts)—up from $15,000 for 2021.
For parents, making a down payment gift represents one of many ways to transfer wealth, often with fewer tax implications. For tax year 2022, you and a spouse can each gift your child up to $16,000, for a total of $32,000, without triggering the gift tax.
For tax year 2022, parents can each take advantage of their annual gift tax exclusions of $16,000 per child (that number goes up to $17,000 in 2023). For a family consisting of two parents and two children, parents could together give each child $34,000 for a total of $68,000 – without filing a gift tax return.
That's up from $16,000 in 2022 and $15,000 in 2021, where it had been stuck since 2018. The other big change: the lifetime estate and gift tax exemption (also known as the unified credit), will jump to $12.92 million in 2023, up from $12.06 million in 2022.
Custodial accounts and trusts are ways to transfer cash to your kids. If you have the wherewithal to start your children off with a bang, you can give as much as $14,000 a year to each child (indeed, to as many individuals as you want) without any tax consequences to you.
If you do report regularly, you must tell us on or before your reporting date, of the period when the gift happens. If you don't, we may overpay you. You can report gifts, sales or transfers in any of the following ways: using your Centrelink online account through myGov.
Centrelink provisions allow you to gift $10,000 per financial year with a maximum of $30,000 over a five year period. You are free to gift as much as you like, no one can stop you, however, for Centrelink purposes the transfer of wealth beyond the amounts noted above will be assessable under a means test.
The person who receives your gift does not have to report the gift to the IRS or pay gift or income tax on its value. You make a gift when you give property, including money, or the use or income from property, without expecting to receive something of equal value in return.
The federal estate tax exemption shields $12.06 million from tax as of 2022 (rising to $12.92 million in 2023). 2 There's no income tax on inheritances.