“Can I gift a home to my kids and would it affect them in any financial way?”

Oct 30, 2023

Q: We have been retired for 5 years and are self-funded retirees thanks to our existing superannuation fund, plus we have money invested in term deposits. We also have a holiday unit, and the total value of these assets puts us over the pension asset test limits.

We have heard about gifting the unit to our 2 married children. How do we go about this, and would it affect them in any financial way?

There may be hidden benefits that you may not be aware of, but that could be offset by the considerable costs involved.

You mentioned that you didn’t qualify for an Aged Pension so it is worth understanding what might happen if you give to holiday unit away to your kids.

Under the Centrelink deprivation rules, you can’t deprive yourself of assets in order to qualify for, or increase your rate of Age Pension. If you do give assets away, Centrelink will only reduce your assessable assets by $10,000 per year with a maximum of $30,000 over a rolling 5 year period. Once the 5 year period is over however, the deprived assets are removed from the assessable assets used to calculate your entitlements.

This means that if you were to give the property away tomorrow, 5 years to the day, the gift will be removed from the Centrelink systems. It might be the case that once this gift “drops-off”, you might come under the upper asset test limit for a home-owning couple.

Currently, this limit is $1,003,000, which does not include the value of your family home. This number increases three times per year so potentially in 5 years time, it could easily be more than $1.2 Million. You might find that you then qualify for a part Aged Pension.

The other financial implications to consider

Perhaps of greater consideration, are the other financial implications of your gift. The fact that you receive no money for the gift is irrelevant, the government will still want their cut.

Because there will be a change in ownership, the disposal will trigger a capital gains tax event and you could end up with a sizeable tax bill. This tax will be based on the disposal value, less the cost of any capital improvements, less the purchase price, effectively giving you the gross profit.

As you have held the property for more than 12 months, only 50 per cent of the gross profit is taxable and added to your other income this year.

Assuming the unit is held jointly, the profit is split between the two of you. You would each pay tax at your marginal tax rates, on the total individual income for the year.

To finalise these calculations, you will need to obtain a valuation from a licensed valuer to ascertain the market value to establish the disposal value. You can’t estimate or use a real-estate agent’s valuation for tax purposes. The valuation can also be used to calculate the stamp-duty payable, as this change of ownership will also trigger stamp-duty.

Leaving assets in a Will

These are the financial reasons why many families simply leave assets to their children via a Will. Death is not a capital gains tax event and significantly reduced rates of stamp-duty usually apply to assets transferred via a deceased estate.

Depending on your children’s circumstances, the value of their share of the gifted unit may affect any means tested benefits they receive like Jobseeker, pensions or other benefits. You will probably need to engage a settlement agent or solicitor to complete the documentation with your state’s land title office and this will also come at a cost.

In a nutshell, you need to ascertain the benefit likely to be gained in 5 years by giving the holiday unit away now, versus the considerable cash outlay needed to fund all aspects of the transfer.

Finally, give some consideration to potential future family law issues. You may need legal advice on how to protect the holiday unit in the event that one or both relationships of your children break down in years to come.

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IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.

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