Q) I would like to transfer some of my Commonwealth Bank shares to my grandchildren. I’ve had them for many years. Will I have to pay any tax or other fees for that transfer to them?
Even though this is a relatively straightforward question, there are quite a few issues to consider surrounding tax and Centrelink. When you transfer any asset to another person, that event is regarded as a disposal under Capital Gains Tax rules and tax may be payable. The only exception to this rule is giving away cash.
Even though the transfer of shares is a gift, the Australian Tax Office (ATO) will attach a value to the shares based on the closing price on the date the transfer takes place. As you have held the shares for more than 12 months, tax will be based on 50 per cent of the profit that you make.
You do, however, have some choice over which shares you dispose of. This is particularly useful if you have been making using of the dividend reinvestment plan. You can essentially pick which shares you are giving away to reduce the profits and therefore the potential tax payable. In most cases, that would be the most recent shares you obtained first, as these are likely to be closer in value to the sale value used by the ATO. Having the ‘sale price’ closer to your ‘buy price’ means the total profits will be less.
Once the ’50 per cent of the profit’ figure is added to your other income the year the gift takes place, you may or may not have to pay tax. As a rough guide, if the total income from all sources such as Centrelink, share dividends, bank interest and taxable capital gains is less than $33,898 and you are a single senior, you won’t have to pay tax. (For a couple, the threshold is $30,592 each — giving us a combined total of $61,184.)
The actual transfer can be done via an off-market-share-transfer form, which you can obtain online or via your stockbroker. There’s typically a $54 processing fee to pay.
The final consideration is to understand the gifting or deprivation rules applied by Centrelink. If the value of the gift to your grandchildren exceeds $10,000 in total, your assets will be reduced by $10,000, but the excess will stay in Centrelink’s records as though you still have the shares for five years from the date of transfer. After five years, the “gift” drops off the system.
One trick you could employ is to split the gift in two, so that half the shares transfer this financial year and the other half next. While it will cost you two lots of $54, it may save you tax and improve your overall Centrelink position.
Please note that if you are already receiving a full Age Pension then none of this will matter. The gifting rules generally only affect people on a part pension.
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.