We gifted our 15-year-old grandkids $100,000. Will they have to pay tax?

In January 2024, we gave our twin granddaughters $50,000 each. They had just turned 15. Both are still at school but also work part-time. It’s not an issue for us as we’re not government pensioners, but we’re wondering if there are any tax implications. The girls have placed the money in term deposits.

Minors face two different tax rates. All income from work, and the earnings on money invested from that work, are taxed at normal adult rates – so the first $18,200 is tax-free. Unfortunately, people under 18 also face a special tax on unearned income, which is the earnings on money that has been given to them.

The first $416 of this is tax-free, but the balance is taxed at the highest marginal rate. They are only about 15 months from turning 18, so this will be a short-term effect.

Just make sure the money from their own earnings, and its interest, is kept strictly separate from the $50,000 you have given them.

I have an account-based pension of $450,000. If the fund earns $100,000 in a good year and I draw what I need, with $50,000 left over, is that treated as an increase in assets for the next year? And how is it assessed – does deeming apply?

Yes. For age pension purposes, your super balance is counted under the assets test, so any growth increases your assessable assets. Centrelink usually updates balances twice a year. For the income test, actual earnings are ignored and deeming rates apply to the total balance – so if the balance rises, the deemed income also goes up.

I’m 70 and my wife is 69. I have about $300,000 in super in pension mode. My financial adviser suggests I withdraw all my super and reinvest it so the full amount is available to my dependants when I pass. I’m not very sophisticated with money, so I’d appreciate your advice. My wife is my nominated beneficiary, but if she predeceases me – or we go together – I assume my two children would then inherit.

Your adviser is referring to the 17 per cent “death tax” on the taxable component of super left to non-dependants such as adult children. This does not apply if the money passes to your wife.

The main question is whether to withdraw it now, tax-free, and invest outside super, or to keep it in the fund. If you withdraw the money, you will lose the structure and discipline of super: regular income, professional management, and reporting. Given you describe yourself as unsophisticated with money, it may be best to leave it in super.

One possible strategy, with professional guidance, is to withdraw the balance and then recontribute it as a non-concessional contribution. That can reduce or even eliminate the taxable component while keeping the benefits of super.

I’m confused about how my super is being taxed right now. I am in the accumulation mode with Aware Super and invested in the indexed high-growth option. My balance increased by $200,000 last financial year, but I paid less than $4000 tax, which would appear to be the 15 per cent tax on my contributions.

Most of the balance increase is returns on the investment, rather than extra money I have put in, so why is the tax so low? I am also planning on starting a superannuation pension after my 60th birthday and was wondering if there are any good reasons for not using the full transfer balance cap initially. I want to keep working part-time and so will keep some funds in the accumulation account.

One of the great advantages of having money in superannuation is the favourable tax treatment. Here’s how it works.

Super funds like Aware Super set aside tax on earnings at up to 15 per cent in the accumulation phase. This is called tax provisioning. It means the fund allows for tax internally, so the returns you see are already net of tax.

That’s why you don’t pay tax on investment earnings when you switch investments or make a withdrawal. In your case, the $200,000 increase in your balance already reflects the impact of fees, costs, and tax.

Once you transfer your savings into a retirement phase account, all earnings on that balance become completely tax-free, boosting long-term returns. The trade-off is that you must withdraw a minimum each year – set by the government and starting at 4 per cent from age 60.

There’s generally no downside to using the full transfer balance cap, which is the maximum you can move into a retirement account. To access your super from age 60, you must meet a condition of release, such as ceasing work or permanently retiring. Meeting this condition doesn’t stop you from going back to work later, whether part-time or full-time.

Some funds, including Aware Super, may also offer a retirement bonus when you move money from accumulation to retirement phase. This comes from a reduction in tax payable by the fund once your money enters the tax-free phase.

It’s not a gift or incentive as such, but a rebate of tax the fund no longer has to pay. Your super fund can give you an estimate of any retirement bonus that might apply.

Noel Whittaker is author of Retirement Made Simple and other books on personal finance. Questions to: noel@noelwhittaker.com.au

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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