With a Deed of Gift you voluntarily and without payment transfer the money or gift to someone. It is evidence that you gave the money or asset away. No strings attached. It is an absolute gift. You do not want it back. And you want no payment. In fact, you want nothing. Which is the very nature of a 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? Now they want to challenge dad’s Will.
Put the matter beyond doubt by building a Gifting Deed.
A gift is a voluntary transfer of property from one person (Donor) to another. It is made gratuitously to the recipient.
A Gift Deed is a document. It transfers money or property to another person.
The person who makes the gift is the Donor. The person to whom the gift is made is called the Recipient (donee).
The Donor is the person that is giving away the asset. Other names for a Donor are:
The Gift Deed is a document. It records the transfer of ownership. This is over property from one person to another. This is in cases where the Donor does not require any payment from the recipient. For the transfer to be effective at law, both parties sign the Gifting Deed.
Gift deeds are useful for making the Donor’s intentions clear. This is to those who believe they have a claim to the property. The gift deed is evidence of a transfer. A gift deed resolves future misunderstandings as to who owns the property.
This is because once the gifting deed is signed, an irrevocable transfer is made to the recipient. Thus, a gift deed holds the purpose of creating a valid and documented record of the gifting of a good or property. A Deed of Gift is evidence of the legal transfer of ownership of the asset or property from the Donor to Recipient.
Three elements determine whether or not a gift is made:
The Legal Consolidated Gift Deed complies with these rules.
A Deed of Gift, in Australia, is evidence. This is that the money or asset is 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.
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.
You build a Deed of Gift when:
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:
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.
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:
Speak to us, your accountant or financial planner in these instances.
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:
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:
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.
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:
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.
‘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.
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. But it is less likely to stand up against bankruptcy and the family court.
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:
whichever is the higher amount.
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.
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.)
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.
You gifted a $3m house via a Deed of Gift. The ‘price’ you ‘sold’ the property for is zero. But the market value is $3m:
Dad gifts his family home to his eldest daughter, Joanne. The home is worth $1,000,000. Joanne, by law, must take the Deed of Gift to that State stamp duty office in that state. And she pays about $45,000 in (transfer) duty.
But her dad, John, pays no Capital Gains Tax. This is because, in this instance (but not in all instances) there is no CGT when a family home if given away. (There is, also, no CGT on a family home when it is sold. But that is another story.)
Q: Professor Davies, I own a piece of real estate. I am going to gift the real estate. This is from myself to my Family Trust. I am the Appointor, Trustee and Specified Beneficiary of the Family Trust. The transfer is via a Deed of Gift. Surely, you are not suggesting that I have to pay CGT? And the Family Trust has to pay stamp duty?
A: I am sorry to tell you but, yes, there is CGT and stamp duty. If you originally acquired the property for $800k and it is now $1.2m. Then you pay CGT on $400k. This is the capital gain. Sure, you got no money for the property. But you still pay capital gain on the $400, regardless.
And to add insult to injury your Family Trust pays stamp duty of about 4.5% on the full $1.2m. Your Family Trust writes a cheque to the State government for about $54,000.
Stamp duty and CGT are triggered when the ‘beneficial’ ownership changes. For example, when you gift an asset to another person that other person becomes both the ‘legal owner’ and the ‘beneficial owner’. But, with a Bare Trust, the ‘owner‘ may change, however, the ‘true owner’ (beneficial owner) may not change. See here.
The ATO reviews, audits and actively engages with taxpayers who enter into arrangements. This is where taxpayers are aware of their residency status. But attempt to avoid or evade tax on their foreign assessable income. This is by concealing the character of funds upon their repatriation to Australia. This is by disguising the funds received as a gift, or a loan, from a related overseas entity.
The ‘related overseas entity’ is often a family member, a friend or an associate such as a related company and trust.
As part of the process of undertaking reviews, audits and actively engaging with taxpayers who enter into these arrangements, the ATO is using its exchange of information powers to gather information from other countries. This includes, the foreign assessable income derived by taxpayers in those countries.
The ATO also use other sources of information, such as data from the Australian Transaction Reports and Analysis Centre (AUSTRAC). AUSTRAC identifies movements of funds into Australia as well as the data it receives via the Common Reporting Standard and the Foreign Account Tax Compliance Act.
Penalties apply to participants in, and promoters of, this type of arrangement. This includes serious penalties under Division 290 of Schedule 1 Taxation Administration Act 1953 for promoters. In more serious cases, sanctions under criminal law may apply.
Registered tax agents involved in the promotion of this type of arrangement are referred to the Tax Practitioners Board. This is to consider whether there is a breach of the Tax Agent Services Act 2009.
Legal Consolidated warns that lawyers, accountants and financial planners must be vigilant to not inadvertently become involved in this loss of tax revenue for Australia.
Interest earned on your foreign bank account is assessable. See Dezfoolian and Fed Commissioner of Tax  AATA 3991 (AAT, Olding SM, 29 October 2021).
The taxpayer is an Australian resident. In 2011, he transfers $180,000 from his Australian bank account to an account with an Iranian bank. He hopes to benefit from higher interest rates on offer in Iran.
The Iranian bank periodically credits interest to the taxpayer’s account.
Sadly for the taxpayer, the Iranian currency crashes. In October 2018 he returns most of the funds back to Australian dollars. And these Australian dollars are transferred to his Australian bank account.
The taxpayer fails to include in his Australian income tax returns the interest credited to his account. This is by the Iranian bank.
The ATO does an audit. The ATO issues assessments treating the undeclared interest as assessable income. The ATO also imposes penalties for the income years after the taxpayer removed the funds from the Iranian bank (2019 and 2020) as he wrongly returns his foreign exchange losses as gifts or donations.
By doing so, the taxpayer reduces his assessable income by the amount of the losses he claimed in 2019 and the amount he treated as carried forward losses in 2020. There was in any event no tax shortfall in the 2019 income year.
Obviously, the AAT confirms the ATO assessments. This is for the interest derived by an Australian resident. It is clearly assessable. The source of the interest is irrelevant. Australian taxpayers are taxed on world wide income. However, the ATO accepts that the interest should be converted to Australian dollars. This is using a more favourable exchange rate than the one the ATO used in assessing the taxpayer.
What about the penalties? Again, the taxpayer fails to show that he had exercised reasonable care in preparing his 2019 and 2020 returns. The onus to prove is, sadly and unfairly, on the tax payer.
The AAT points out that the taxpayer had previously been told of the correct treatment of foreign exchange losses and there is no evidence of the taxpayer actually making any enquiries at all. He seems to have spoken neither to the ATO or his accountant. This is about the proper treatment of the foreign exchange losses and the preparation of his returns.
The AAT also said there were no grounds to remit the penalties. This is even though there is no tax shortfall for 2019. The taxpayer must ensure that his returns are accurate. But the evidence shows that “he took little effort to do so and was more intent on claiming what he considered to be the appropriate tax treatment”.
Where a taxpayer receives a gift from a foreign related entity, the onus is on the taxpayer. This is to substantiate the position that this gift is a genuine gift. And that it is not an arrangement that falls foul of the Taxpayer Alert 2021/2.
The ATO is not focused on arrangements where you derive no foreign assessable income. This is where you received a genuine gift or genuine loan from a related overseas entity. The three requirements of a genuine gift:
Taxpayers that are potentially able to obtain sufficient evidence to prove their gift is genuine should seek professional advice from their adviser and accountant.
Taxpayers that cannot obtain evidence to discharge their burden of proof should also obtain professional advice and voluntarily disclosing arrangements to the ATO. As the ATO has outlined in the Taxpayer Alert, arrangements of this nature are result in both taxpayers and their advisers facing substantial penalties. Voluntary disclosures can significantly reduce the imposition of penalties of up to 90% of the tax liability.
A Deed of Gift reduces the opportunities for relatives to come back to attack the gift. This is often the case after the Donor loses mental capacity or dies.
How do I build the Deed of Gift?
Transferring property to someone as a gift? For no cost? Then build a Gift Deed. Start building the Deed of Gift. The building process educates you on how a Gift Deed works:
See a full free sample of the Deed of Gift
To see a full free sample of the Deed of Gift just select the button above.
Upon building the Gifting Agreement online you get emailed to you within seconds:
1. Deed of Gift Document
2. Our law firm’s letter of advice on our law firm’s letterhead
Adj Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, Dip Ed, BArts(Hons), LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
National Australian law firm
National: 1800 141 612
Mobile: 0477 796 959
Email: [email protected]