At this time of year, when giving is on our minds, many people may turn their attention to how best to share their wealth or an unexpected windfall with loved ones.
You might be considering a lump sum to help with a major purchase or a business opportunity, or perhaps you’re eager to assist in reducing or clearing a loved one’s student loans. Alternatively, you may want to help them address a housing challenge.
Whatever the reason, it’s important to be aware of a few key rules to ensure that both you and your loved ones are protected.
Giving a cash gift
You can give anyone—family or not—a cash gift of any amount. As long as you don’t materially benefit from the gift or expect anything in return, neither you nor the recipient will need to pay tax on it.¹
The same applies if you’re planning to pay off your child’s student loans.
However, if the beneficiary of your cash gift is receiving a government benefit, such as unemployment benefits or a student allowance, be aware that there are limits on the amount they can receive without affecting their payments.
They can receive up to $10,000 in one financial year or $30,000 over five financial years, with no more than $10,000 allowed in any single financial year.²
Helping with housing
Many parents also like to help their children enter the property market, where possible.
The past few years have been challenging for many, with the COVID-19 pandemic, rising living costs, increasing interest rates, and a housing crisis.
A Productivity Commission report released this year found that while most people born between 1976 and 1982 earn more than their parents did at a similar age, income growth has slowed for those born after 1990.³
With money tight and house prices climbing, three in five renters don’t believe they will ever own a home, even though most (78 per cent) aspire to homeownership, according to data from the Australian Housing and Urban Research Institute (AHURI).⁴
Just over half of those surveyed (52 per cent) were renting because they didn’t have enough for a home deposit, while 42 per cent said they couldn’t afford to buy anything suitable, the AHURI survey found.
In this climate, parental assistance to buy a home isn’t just a nice-to-have—it’s becoming a necessity for many.
Moving home
Allowing your adult child—perhaps with a partner and family—to live rent-free in the family home is a common option, giving them a chance to save for a deposit.
An Australian survey found that one in ten people had moved back in with their parents, either to save money or because they could no longer afford to rent.⁵
If living under the same roof becomes too challenging, building a granny flat in your backyard may be an option. Of course, council regulations must be considered, permits obtained, and the cost of building or purchasing a kit factored in—but on the upside, it may add value to your home.
Becoming a guarantor
Another way to help might be to become a guarantor on your child’s mortgage. While this could be the best path into homeownership for many, it’s important to think it through carefully, understand the loan contract, and be aware of the risks.⁶
Remember, as a guarantor, you are responsible for the debt. If your child can’t repay the loan, you will be required to step in and repay it, and any default will be listed on your own credit report.
If you feel pressured to become a guarantor, it may be a sign of financial abuse. There are several avenues for advice and support if you’re concerned.
Obtaining independent legal advice before signing any loan documents is essential.
Whether you’re thinking about giving a financial gift, helping with housing, or becoming a guarantor, it’s important to navigate the options carefully. For current clients, we encourage you to reach out to your adviser directly for personalised guidance. If you’re not yet a client and would like to learn how to support your children while safeguarding your own financial wellbeing, our expert advisers are here to help—contact us today.
Sources
i Tax on gifts and inheritances | ATO Community
ii How much you can gift – Age Pension – Services Australia
iii Fairly equal? Economic mobility in Australia – Commission Research Paper – Productivity Commission
iv Rising proportion of ‘forever renters’ requires tax and policy re-think | AHURI
v Coming home: 662,000 Australian households reunite with adult children – finder.com.au