Paying Children in Installments 'Results in Millions in Gift Tax Penalties'! Tax Authority Reveals 2 Overlooked Details, Leading to Combined Back Taxes and Fines

Many parents plan to transfer assets to the next generation early to reduce their children's burden of buying homes or managing daily expenses. However, if tax regulations are not properly understood, assuming that withdrawing cash in small amounts and depositing it in installments can evade tax authority audits may result in back taxes, hefty fines, and even gift tax rates of 10% to 20%.

According to the tax authority, the Inheritance and Gift Tax Act stipulates that the annual tax-free gift amount is NT$2.44 million per person (based on the calendar year, from January 1 to December 31). However, many people misunderstand how this tax-free amount is calculated.

Paying children in installments under NT$2.44 million—can you avoid taxes? Tax authority targets '2 tactics' leading to combined back taxes and fines totaling millions

There was a past case where a mother assumed the 'per-person tax-free allowance' applied to each recipient (her children). That year, she gave each of her two daughters NT$2 million, believing the amount was below the tax-free threshold (which was NT$2.2 million at the time). However, she was still required by the tax authority to pay NT$180,000 in gift tax.

The key is that 'the tax-free allowance is calculated based on the donor (the person giving the money)', not the recipients. Regardless of how many people receive the gift, the total amount given by one person in a year must not exceed NT$2.44 million.

· Incorrect approach: The mother gave a total of NT$4 million, exceeding the previous tax-free limit of NT$2.2 million. The taxable amount of NT$1.8 million was taxed at 10%, resulting in NT$180,000 in tax.

· Legal workaround: Both parents individually gift to the two daughters. Since each parent has a tax-free allowance of NT$2.44 million (totaling NT$4.88 million), the transfer can be completed tax-free.

If the total amount gifted in a year exceeds NT$2.44 million, the donor must file a declaration with the tax authority within 30 days of the gift.

Withdrawing cash in installments? You may trigger the tax authority's 'two major cash flow monitoring red flags'

Some parents attempt to avoid gift tax by withdrawing cash and depositing it into their children's accounts, thinking that as long as the withdrawals are small and deposited into the child's bank account, there will be no issue. However, tax authorities still have full oversight.

Red flag 1: Large cash withdrawals and deposits over NT$500,000 leave a record

One individual dispersed NT$50 million from property sale proceeds across different banks and, over six months, withdrew cash in amounts under NT$2.44 million and deposited it into their child's account. Despite this, the tax authority issued a notice requesting an explanation, and the individual ended up paying over NT$10 million in combined back taxes and penalties.

The main reason is that financial institutions record all cash transactions exceeding NT$500,000, allowing the tax authority to investigate potential tax evasion.

Red flag 2: Frequent transactions under NT$500,000 trigger abnormal transaction alerts

Another individual, learning from the NT$500,000 threshold, instead withdrew NT$200,000 at a time and deposited it into their child's account, completing the process over six months. However, the number of withdrawals exceeded 100 times in a short period, far exceeding normal individual account usage patterns. This triggered the bank's system to flag the activity as abnormal and report it to the tax authority.

Even if the individual claims the funds were a 'loan between parent and child, not a gift', if there is no proof of home purchase or prior repayment records from the child, the tax authority will not accept the claim. The transaction will be deemed tax evasion on gift tax, potentially resulting in combined back taxes and fines totaling tens of millions.

A parent was fined NT$900,000 in gift tax for 'lending' money! Claiming 'it was a loan, not a gift' was rejected

The Southern Taiwan Office of the Ministry of Finance stated that in 2013 (Year 102 of the Republic of China), an individual transferred a total of USD 230,000 (approximately NT$6.86 million) to two daughters in four installments via bank transfer. As the gift tax was not declared, it was determined to be an unconditional gift. The initial ruling required back payment of NT$466,880 in gift tax, plus an equal penalty, totaling a penalty of NT$933,760. The individual filed for a review but was ultimately rejected by the tax authority.

What is the 2026 gift tax exemption amount? Does transferring money to children count as a gift?

Legally, transferring money to children is generally considered a gift, as parents are transferring funds unconditionally, allowing children to acquire assets. According to the Ministry of Finance's official website, the gift tax exemption is limited to NT$2.44 million per donor per year. This means that each donor, from January 1 to December 31 each year, can give a total of up to NT$2.44 million to any number of recipients without incurring gift tax.

If you are a parent, you can use your annual NT$2.44 million tax-free allowance to gift cash in your name to your children. The children can then use the gifted funds in their own name for investment or property purchase. Any interest or investment returns generated from this cash belong solely to the children (this portion is not considered a gift from the parents).

2026 Gift Tax Brackets

Taxable Net Gift Amount Range Tax Rate Progressive Deduction Explanation Up to NT$25 million 10% $0 Base bracket Over NT$25 million to NT$50 million 15% NT$1.25 million After tax calculation, deduct NT$1.25 million progressive deduction Over NT$50 million 20% NT$3.75 million Highest bracket, deduct NT$3.75 million progressive deduction

Q1: Does the annual NT$2.44 million gift tax exemption mean each child can receive NT$2.44 million?

A1: No. The exemption is calculated per 'donor' (the person giving the money). The total amount one person gives in a year must not exceed NT$2.44 million. If both parents gift individually, they can together use a combined annual exemption of NT$4.88 million.

Q2: If I withdraw and deposit cash under NT$500,000 in installments to my child's account, will the tax authority not detect it?

A2: Incorrect. In addition to transactions over NT$500,000 being recorded, frequent transactions under NT$500,000 in a short period (e.g., over 100 transactions) will also trigger abnormal transaction alerts from financial institutions, leading the tax authority to flag and audit the account.

Q3: If I transfer money to my child for buying a house and claim it's a 'loan', can I avoid gift tax?

A3: Clear loan evidence is required. The tax authority primarily looks for continuous and genuine repayment records before an audit (bank transfers with proof are recommended). If there are no repayment records or repayments only begin after an audit, it will still be deemed a gift and subject to taxation and penalties.