Deed of Gift – evidence of the outright gift

Deed of Gift

A Deed of Gift is where you voluntarily and without payment transfer the money or gift to someone.

Why do a Deed of Gift?

Did someone give you a gift? But now wants it back? Did your dad give you a gift and after he died your family said it was a loan? And that you now have to pay it back?

How does the Deed of Gift work?

A Deed of Gift, in Australia, conclusive proof that the money or asset was actually given to the person. This is with no strings attached.

A Deed of Gift is a deed. It is a legal document. It is signed by the donor. The donor is the person giving the money or the asset away.  The Deed of Gift states that the donor voluntarily and without payment gifts the property to the recipient. The Deed of Gift transfers ownership from the donor to the recipient.

1. Why use a Deed of Gift?

When a father hands money or an asset to a wife or child it is considered to be a gift. But when a wife or child hands money or an asset to the husband it is deemed to be a loan. There are many other strange rules. To put the matter beyond doubt the Deed of Gift clearly sets out that the transfer of the asset is a gift – with no strings attached. It is an outright gift.

2. When do I need a Deed of Gift?

You build a Deed of Gift when:

(i) the donor makes a gift to the recipient, and

(ii) there are no conditions imposed in the making of the gift.

For example ‘mum and dad’ give their son a car. It is an outright gift. They don’t want the car back. And they want no money for the car. ‘Mum and dad’ are the donors. Their son is the recipient.

The opposite of a Deed of Gift is a:

Loan Agreement

Parent lending money to a child

Spouse loan agreement

Do I have to pay the loan back when the Donor dies?

The person giving you the gift is called a ‘donor’. The donor now dies. All debts of the donor’s estate are payable. This is to the dead person’s estate. But, because, you have a Deed of Gift you have evidence that it was not a loan. You owe the estate nothing.

The Deed of Gift legally transfers property ownership to the recipient. The transfer takes place before the Donor dies. While you can challenge a Will, you cannot challenge a Deed of Gift through the Family Provisions legislation in your local State.

This is assuming the donor is of sound mind and not forced to sign the Deed of Gift. Get a doctor’s certificate saying the Donor is of sound mind. Keep that with the Deed of Gift.

3. Tax on a Deed of Gift. Any gift tax in Australia?

There are no taxation issues in Australia. There is no taxation on gifts. This is provided that the gift is made for ‘natural love and affection‘. You can have ‘natural love and affection’ between companies, humans and trusts. However if:

3.1  you are gifting money to an employee: Fringe Benefit Tax
3.2  a company gives money to a related human or trust:  Division 7A ITAA 1936 issues
3.3  you are on a government pension there may be a loss of Centrelink or similar benefits under ‘deprivation‘ and other rules
3.4  you are gifting to a charity you may get a tax deduction (but if you can’t use the tax deduction it may be better to gift the money to someone that is paying tax and let them gift the money to the charity, instead)

Speak to us, your accountant or financial planner in these instances.

What is ‘gifting’ in the eyes of the Australian government?

The Department of Human Services describes gifting as giving away assets or transferring them for less than their market value.

For example, selling or transferring for free or less than market value:

1. units in a unit trust
2. shares in a private company or listed company (e.g. BHP shares)
3. property, land, home, factory
4. car

4. Dad giving me money from overseas

Your Mum is sending you money from overseas. The ATO may take the view that this is income.

The Australian Transaction Reports and Analysis Centre (AUSTRAC) monitors all large flows of money into and out of Australia. All money transfer businesses in Australia are registered with AUSTRAC and comply with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006  (Cth).

It passes on information about suspect transactions to the ATO and Centrelink.

Generally, if you’re an Australian resident for tax purposes and you transfer money from an overseas bank account to an Australian bank account it isn’t considered income. But to make it clear that it is a gift build this Deed of Gift where:

1. Donor: Mum Full Name
2. Recipient: Your Full Name
3. Gift: 5,000 British Pounds

It is fine and common that the Donor is from another country. The Donor may never have been to Australia. That is also acceptable.

Build the Deed of Gift. You get the document as a PDF. Email the PDF to your Mum to sign. She then scans and emails it back to you. You sign what she sends back.

You may need to report a money transfer to government bodies. This includes the ATO, Centrelink and the Australian Transaction Reports and Analysis Centre (AUSTRAC). So even more reason, if you are audited by the ATO, to put a Deed of Gift in place.

5. Sending money to my overseas’s parents – financial support to loved ones abroad,

You love your parents. They live outside of Australia. You want to send them money. Why not, you live in the best country in the World: Australia. The Australian government and the ATO wants to know all about this. Put their mind at ease by clearly documenting what you are doing. Build a Deed of Gift:

1. Donor: Your Full Name
2. Recipient: Dads Full Name
3. Gift: AUS$50,000

It is fine that your Dad has never been to Australia.

Whether you’re buying property in London, making an investment in the USA or paying for a destination wedding in Italy, sending large sums of money in and out of Australia doesn’t come without thought. Protect yourself with a Deed of Gift.

What does the Deed of Gift contain?

1. Our law firm’s letter of advice on our law firm’s letterhead and signed by one of our partners

2. The Deed of Gift Document

A Deed of Gift requires ‘consideration’

‘Consideration’ is when someone pays you for what you are getting. For example, if you sell a car for $30,000 then the consideration for the car is the $30,000.

To be legal an agreement requires ‘consideration’.

But with a gift, there is no consideration. However, that is fine if you sign the legal document as a ‘deed’. Your Deed of Gift is a deed. It is legally binding without the need for consideration.

But I got the gift last year – can Deeds of Gift work for past gifts

It is better to sign the Deed of Gift before you hand over the asset. But, the Deed of Gift still works even though the Donor handed over the asset in the past. It is never too late to sign a Deed of Gift.

Deed of Gift of real estate – Capital Gains Tax

If you gift Australian real estate you get the main residence exemption. Your family home exemption still applies.

If it is not your family home then you pay Capital Gains Tax. CGT is payable on what you ‘sell’ the property for or what it is worth. Whichever is the higher.

Even if you receive nothing for your property, you are taken to have received its ‘market value’ at the time you ‘disposed’ of it.

This means you pay capital gains tax on any capital gain for the part of the property that was not exempt.

CGT applies to many assets, not just real estate. For example, shares, units in a Unit Trust and an interest in a partnership also suffer CGT. This is the case even if you ‘give’ the asset away.

The Donor pays the CGT. The Donee does not pay CGT.

(Special Disability Trusts often do not pay CGT. If you transfer real estate to the trustee of a special disability trust for no consideration, any capital gain or loss is often disregarded.)

Stamp Duty on real estate via a Deed of Gift

When you transfer the value of the real estate the person getting the gift pays stamp duty. Stamp duty depending on the State is called: transfer duty, duty or stamp duty. Across Australia, this duty is about 4.5%. It is on the price you sold the property for or the market value. It is the higher of the amount.

Example:

You gifted a $2m house in Hobart via a Deed of Gift. The ‘price’ you ‘sold’ the property for is zero. But the market value is $2m. The person getting the gift pays the stamp duty. The Donee pays the stamp duty.

See also

Help building Gifting Agreement

For more legal advice telephone us. We help you answer the questions to build the Deed of Gift.

Adj Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
National Australian law firm
Mobile: 0477 796 959
National: 1800 141 612
Email: [email protected]