Many people wonder whether gift tax applies to money received from parents or grandparents, or to allowances given to their parents, ahead of Chuseok.
Even for the same amount, the assessment may differ depending on who received it, whether there were gifts received during the past 10 years, and how the money was used.
In particular, the idea that gift tax issues can be avoided simply by adding a note to an account transfer or dividing the amount into multiple transfers has little basis.
3-Line Summary
1. Gift tax deductions are aggregated over 10 years
2. Minors receive a 2,000만원 deduction over 10 years
3. For living expenses, the actual use of the money is important
Money from Parents and Grandparents Is Also Counted Together for the Minor’s Deduction
According to reporting citing guidance from the National Tax Service, when a minor who is a tax-law resident receives a gift from a lineal ascendant such as a parent or grandparent, the general gift-property deduction limit is 2,000만원 over 10 years. For adults, 5,000만원 over 10 years was presented as the general deduction limit for the same relationship.
An easily overlooked point is that a separate deduction limit does not arise for each amount received from parents and grandparents. Gifts received not only from one’s father and mother but also from paternal and maternal grandparents are calculated together within the same limit. For example, if a minor has already received a 1,500만원 deduction and 10 years have not passed since the first gift, the remaining deduction is 500만원. If the grandmother gives an additional 1,000만원, only 500만원 receives an additional deduction, while the remaining 500만원 may become subject to gift tax calculation.
There is also an explanation that when grandparents give a gift directly to a grandchild, skipping the parent’s generation, 30% is generally added to the calculated gift tax. However, it was explained that the surcharge does not apply when the grandparent’s child has died and the gift is made to that child’s child.
A Note Saying “Holiday Allowance” Alone Does Not Make It Tax-Exempt
Holiday allowances recognized under socially accepted norms, as well as living, medical, and educational expenses for dependents, may not be subject to gift tax. However, the key is not the transfer memo but the actual use of the money.
If money given by a parent to a child is used for purposes necessary for daily life, there may be room for it to be recognized as tax-exempt. Conversely, if money received as an allowance or living expenses is saved in a deposit or installment savings account, or used to acquire assets such as stocks, land, or a home, it may be judged to be an ordinary gift. The Electronic Times reported that, for money given by a child to a parent as well, it is important whether the money was directly used for necessary living expenses such as the parent’s grocery shopping, maintenance fees, or hospital bills.
It was also suggested that when a child regularly sends large sums to parents who have sufficient income or assets, the money may not be recognized simply as living expenses for support. The explanation was that an actual assessment examines specific facts together, including the recipient’s income and assets and how the money was used.
Sending 990만원 at a Time Does Not Change the Standard: Substance Matters More Than “Form”
Tax accountant Moon Jae-wan, introduced by Financial News, explained that leaving a memo saying “living expenses” or “educational expenses,” or allowing a child to use a credit card in a parent’s name, is not enough to avoid gift tax. The point was that gift tax is assessed based on substance rather than form.
It was also said that claims that the National Tax Service cannot know about amounts below 1,000만원, or that repeatedly withdrawing or transferring 990만원 or 500만원 at a time is safe, have no basis. According to the report, cash transactions of 1,000만원 or more in a single day may automatically be reported as high-value cash transactions to the Korea Financial Intelligence Unit (FIU), and transactions repeatedly divided into smaller amounts may also become subject to a bank employee’s suspicious transaction report.
Gifts subject to reporting must be reported within 3 months from the end of the month in which the money was received. Tax experts also offered the view that even when there is no tax due because the amount falls within the deduction limit, filing a report can serve as evidence for explaining the source of funds in the future. However, because whether an individual case is taxable must be determined by considering the relationship, the gift history over 10 years, and the use of the money together, specific calculations require confirmation from a professional.
References
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