Strategic Gifting: Empowering the Next Generation Without Compromising Your Own

For financially secure retirees, supporting adult children can be a meaningful way to pass on wealth early. Beyond the emotional rewards, strategic gifting offers financial advantages. With no gifting taxes or limits in Australia, there’s flexibility, but rising property prices, cost-of-living pressures, and complex tax rules make thoughtful planning essential.

Why Consider Strategic Gifting?

Compounding Benefits

Starting early provides significant advantages: even modest gifts can grow into substantial wealth over decades. Early support gives children the head start to invest, build assets, and form sound financial habits. This often results in achieving outcomes that would be unattainable if the same resources arrive later in life.

Chart Assumptions

• No additional contributions after initial gift
• Returns shown are pre-tax and do not account for inflation
• Actual returns will vary and past performance does not guarantee future results

Please note, the above table is for illustrative purposes only and does not constitute advice. The actual outcome will vary based on market movements, fees, insurance premiums, tax paid, and your relevant personal circumstances. The portfolio growth rate of 7% is based on the average 10-year return of a typical balanced portfolio as per Superratings. Individual performance may also differ due to timing of transactions or investment size of holdings.

Division 296 Benefits

Gifting can help reduce exposure to the proposed Division 296 tax that will apply to super balances over $3M. After exploring options like rebalancing with a spouse or investing outside super, gifting may be an effective way to redistribute wealth.

Managing Excess Income

Retirees drawing tax-free pensions from superannuation must meet minimum withdrawal rates. These start at 4% p.a. from age 60, rising to 11% past 90. As spending often declines with age, excess income may sit idle. Redirecting this surplus to children or grandchildren for investment ensures continued growth.

Why Consider Strategic Gifting?

Rather than waiting until assets are distributed through your estate, carefully planned gifts now can be more effective, allowing your children to take advantage of opportunities , such as personal tax savings on super contributions or diversified investment opportunities.

How funds are passed on to the next generation will depend on a range of factors. For example, grandparents gifting to grandchildren should consider the child’s parents tax situation, potential impact on means testing and the longer investment timeframe available for compound growth.

Maximise Super Contributions

Super remains one of the most tax-effective vehicles to build wealth long term. With a variety of contribution options available, it’s often worth exploring multiple types to find the combination that best suits the circumstances.

Explore Trusts and Companies

If super caps are reached, family trusts or investment companies may offer flexibility. Trusts allow income distribution to low-income family members or corporate beneficiaries, supporting long-term wealth building. These structures require professional advice but can be powerful tools for intergenerational planning.

Tax Considerations

If assets are sold to fund gifts, timing matters. Spreading sales across financial years or waiting until after age 60 may reduce capital gains tax. Recipients investing personally may face income tax and future capital gains tax . High-income children contributing to super could also be impacted by Division 293 tax. With planning, these impacts can be managed to avoid eroding the value of your gift.

Professional Collaboration

Bringing together financial advisers, legal experts, and tax specialists ensures your generosity is both impactful and sustainable. Professional guidance helps you understand structures such as trusts and companies, optimise tax outcomes and align gifting with your estate and retirement goals. Just as importantly, collaboration ensures flexibility, so your strategy can adapt if your children’s income changes, your own goals evolve, or legislation shifts, without compromising your financial security.