Chuseok Pocket Money of 500,000 Won... "Dad Will Grow It for You," But Will Gift Tax Apply?

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Handing out pocket money to nieces, nephews, or grandchildren after a long time away for the holidays is a familiar and heartwarming sight. However, depending on how this pocket money received by children is managed and used, they might end up having to pay a gift tax.

Reporter Min Gyeongho looks into when taxes are actually imposed.

[Reporter]

If you see your niece or nephew during Chuseok, realize they are already in high school, and hand them 500,000 won in pocket money, do they have to pay a gift tax?

For the most part, no.

This is because commemorative items or congratulatory money recognized as socially acceptable are exempt from gift tax.

It is fine even if the money is sent and received through a bank account.

What determines whether gift tax applies is the purpose of the funds exchanged, so you do not need to worry about whether a paper trail is left behind or not.

However, the situation changes in cases like this.

If someone says, "Dad will grow the pocket money you received this time so you can buy a laptop," and invests and grows that money on their behalf, it generally becomes subject to taxation.

This is because the funds were used as seed money for investment rather than for everyday living expenses.

This applies to more than just holiday pocket money.

Parents sometimes deposit cash into a bank account opened under their child's name and use it to buy stocks, which must be declared as a gift for the same reason.

Since the initial gifted amount—rather than the grown investment returns—serves as the tax base, if you intend to build a sizable fund for your child through investment anyway, it is more advantageous to make the gift declaration before the money grows.

Minors can receive up to 20 million won over a 10-year period without paying gift tax.

However, if you engage in aggressive investments, such as frequent "day trading" through the child's account after filing the report, the increased investment gains may also be taxed.

This is because the law explicitly defines "increasing the property value of another person" as a gift.

[Lee Chang-eun / Tax Expert, NH Nonghyup Bank: If you only used the child's account but the parents carried out the investments using all of their own knowledge and labor, then taxes may also be levied on those increased profits.]

Caution is also required when investing monthly child allowances.

Since child allowances are funds paid to parents to raise their children, depositing them into a child's account for investment purposes makes them subject to gift tax.

This means that designating the child's account as the recipient account does not exempt you from filing a gift tax return.

(Video Journalist: Shin Jin-su, Video Editing: Lee Seung-jin)
※ Please note: This article was translated by AI and may contain errors.