Avoiding the ATO Gift Tax Trap: What Rules You Should Know

When gifts are taxed

In Australia, most gifts (freely given without expecting any returns) aren’t taxed by the ATO (Australian Taxation Office).

But there are some exceptions.

Gifts from Foreign Trusts can be taxed

If you get money or assets from a foreign trust, you may need to report it on your tax return.

You’ll need to report it even if someone else received the gift (from a foreign trust) first, before passing it on to you. This applies to all kinds of assets, including cash, loans, land, and shares.

Pro Tip: if a foreign trust is involved, ask a tax expert if you need to report it.

Inheritances may face Capital Gains Tax

Inheritances are generally not taxed in Australia.

However, certain asset classes may be subjected to Capital Gains Tax (CGT) such as property.

Here’s how it works:

• No CGT: If you inherit your parents’ property that was always their main residence and it is not used to produce income and you sell it within two years, you likely won’t owe any CGT.
• Possible CGT: If the property was NOT your parents’ main residence the whole time they owned it, or you use it to produce income after they pass (e.g. rent, develop the property), or if you sell it more than two years after inheriting it, you could owe CGT.

Check our guide on Main Residence Exemption for more details and if you are still unsure talk to a tax professional.

The above is a general guide only and depending on actual circumstances, getting to the outcomes can be complex. This is why we always recommend our clients to plan their estates. That way beneficiaries can get the most out of what you leave behind.

Gifting Assets: Watch Out for CGT

Whenever you gift something valuable (land, shares, or cryptocurrency) the ATO may tax you based on its current market value.

This is the “market value substitution rule” – treating valuable gifts as if you sold it for its current market value. That means you might owe CGT on any increase in value since you bought it.

For example, say your parents buy some land, then gift it to you a few years later. They may owe CGT on how much land value has increased in the interim, even though they didn’t receive any money for it.

Similarly, if you donate any cryptocurrency, you may also be taxed on its market value at the time of the donation.

Bottom Line

Gifts are great, but taxes can surprise you.

Knowing the rules can help you, and the people you’re gifting to, avoid unexpected tax bills.

If in doubt, talk to a tax professional who can guide you through the process and help you make the best decisions.