How to gift money to your kids without copping a tax bill


Australians currently hold more than $11 trillion in net assets, the most money that has ever moved from one generation to another, and getting it wrong could be costly.

Here's what you need to consider when transferring wealth to avoid a situation where your main beneficiary is the tax office.

Timing matters

intergenerational wealth transfer giving money to kids grandkids

Timing is everything when transferring wealth. Beneficiaries of deceased estates can be subject to various taxes, which may eat up much of any inheritance left behind.

Gifts given while you're still alive allow you to watch the benefits in action but may adversely impact your own financial health. Consider the tax year too - which financial year money is transferred will impact tax liabilities, especially the recipients.

Property ownership

Perhaps the biggest transfer of generational wealth pertains to helping younger generations onto the property ladder.

There are numerous ways of doing this, though they're not all equal:

  • Loan guarantor: a well-known but risky option - parents can put their own home on the line should their child not meet the repayments for any reason.
  • Gifting all or part of the deposit: This may be feasible for some people with surplus cash. Otherwise, it can dent the parents' retirement savings. Lenders also want to see that buyers have their own savings history.
  • Paying stamp duty: Where first home buyers aren't eligible for stamp duty exemptions, having this paid for can free them of a sizeable burden.
  • Indirect contributions: Such as gifting furniture or funding renovations for the new home. Or supplementing their kids' income for what is diverted into saving the deposit, which can be spaced out instead of a lump sum payment.
  • First Home Super Saver Scheme: Saving the deposit using pre-tax income, with contributions taxed at a lower rate (15%) than income tax. Plus, funds generally earn more invested than saved in the bank. If done well, a first home buyer could withdraw $30,000 from super and reduce their taxable income. Parents then need to chip in less or their contribution goes further.

Calculate the benefits as a whole family, not just individual households, to ensure you all get the biggest bang for your buck.

Living arrangements

Don't overlook your living arrangements, which can be used to maximise the intergenerational wealth pool.

Could multiple generations all live under one roof? Is there space to build a granny flat, which is far cheaper than buying a separate property? Could you replace an older home with a subdivided duplex? Alternatively, could you swap addresses?

The younger generations enjoy the space of the family home while the parents downsize to a smaller, more affordable property their kids' purchase.

Superannuation specialties

Did you know that super left to adult children is usually taxable? Many people get caught unawares. However, there are so-called re-contribution strategies allowing the transfer of funds tax-free, which is why planning ahead is crucial.

Meanwhile, self-managed super funds (SMSFs) can be multi-generational, allowing the whole family to control how superannuation is invested and accessed. But having different ages, trying to get funds out and in can cause other issues.

Estate planning

Everyone should have a will, especially where there are family assets to distribute. Not only does a will ensure your wishes are clearly outlined, but it can help avoid messy disputes between siblings and other surviving relatives.

Testamentary Discretionary Trusts (TDTs) can be a tax-effective means of keeping assets in the family bloodline, especially where assets go to grandchildren. Also ensure nominations in superannuation reflect those in your will: super is separate from the will, so conflicting nominations can create confusion, quarrels and may undo your plans for a TDT.

Everyone's different

Everyone's circumstances are different. And circumstances change over time: divorce/separation affect how assets are distributed. So too does remarrying and blended families. And leaving assets to grandkids is more complex if they are under 18.

Unless you're a trained specialist, you simply don't know what you don't know. Which is why investing in qualified, tailored advice can pay for itself many times over in tax/fees saved and earnings amplified.

Sharing wealth and helping younger generations get ahead shouldn't come at the expense of retirement and quality of life for older generations. So, consider the needs of each generation to ensure everyone benefits!

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Helen Baker is an Australian financial adviser and founder of On Your Own Two Feet. She is the author of On Your Own Two Feet: Steady steps to women's financial independence and On Your Own Two Feet Divorce: Your survive and thrive financial guide. Helen holds a Bachelor of Commerce (Accounting) degree, a Master of Financial Planning, and a Master of Management (Innovation and Change).