Did you know gifting can impact your Age pension?

7 min read

Gifting, or financially assisting family or friends by giving away some of your assets or accumulated retirement savings, can be a great way to help out younger family members. 

What is gifting?

But before you gift a significant amount, it’s important to understand how this could impact your Age pension or other social security benefits you receive now or in the future.

What is gifting?

Gifting can be a viable strategy as gifts given within certain limits can not only provide you with the satisfaction of being able to help others, but also slightly increase your Age Pension benefit entitlement. However, exceeding these limits could result in the gift continuing to be treated as your asset for a period of time, even though you no longer hold this asset.

But gifting isn’t just about giving away an amount of your savings. There are a number of other scenarios where gifting rules may apply, for example:

  • Transferring shares to someone without receiving the full market value in return
  • Giving up control of a company or trust which holds underlying assets
  • Transferring an investment property worth $300,000 to another person for less than its true value (so for $200,000 for example)
  • Forgiving a loan someone owes you
  • Providing money to a company or trust you don’t control, without a loan agreement showing the amount is to be repaid.

What’s not included as gifting?

You wouldn’t be viewed as gifting an asset when you sell or reduce any of your existing assets to meet normal living costs – for example, to pay for a holiday or fund renovations to your home.[1]

You’re also able to transfer assets between yourself and your spouse without the gifting rules applying. Additionally, there may be opportunities to contribute assets to your spouse’s superannuation and increase your Age Pension where your spouse has not yet reached their Age Pension age.[2]

Need help understanding gifting provisions? Contact us to speak to your adviser

How much can you give when gifting?

While you are not limited in the amount, there are limits within which a gift wouldn’t affect your Age Pension benefit. Centrelink use two tests determine if you are within or outside the allowable gifting limits.

Firstly, individuals and couples combined can gift up to $10,000 per financial year or up to $30,000 over a five financial year period and remain within the gifting free period.

Any amounts gifted outside this limit will result in the excess amount being treated as a ‘deprived asset’ which will be counted as an asset under the assets test and deemed under the income test.[3]

How can gifting affect your Age Pension?

The deprivation provisions are designed to limit the potential for social security recipients to reduce their assets and as a result reducing the impact of the income and asset means tests on their benefit entitlement.[4]

Where a person has given away, destroyed or diminished the value of an asset or given away an amount in excess of the gifting free area, Centrelink will treat the individual as continuing to hold the asset under the asset and income means test for five years from the date of the gift.

Concerned about the impact of gifting?

Given the complexities involved in planning for and calculating the impact a gift may have on your Age Pension or other Centrelink benefit, it’s worth seeking help from a qualified financial adviser or Centrelink directly before you gift.

Example – Gifting and deprivation

Joan is aged 68, receives the Age Pension and wants to help her daughter buy a property. On 20 September 2018, Joan gives her daughter $50,000 from an inheritance Joan recently received from her late father.

As Joan has not gifted any amounts previously, the first $10,000 falls under the gifting free area and the remaining $40,000 will continue to be treated as Joan’s asset under the Centrelink income and asset means tests until 20 September 2023.

After this time, the remaining $40,000 will no longer be treated as Joan’s asset.

[1] https://www.humanservices.gov.au/individuals/enablers/gifting
[2] https://www.humanservices.gov.au/individuals/enablers/superannuation/27271
[3] http://guides.dss.gov.au/guide-social-security-law/4/1/1
[4] http://guides.dss.gov.au/guide-social-security-law/4/1/1

Need help understanding gifting provisions? Contact us or speak to your adviser
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The article was prepared by Tim Howard, Strategy Specialist at BT Financial Group and is current as at 31 January 2019.

This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to these factors before acting on it. This information provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. Any tax considerations outlined in this publication are general statements, based on an interpretation of the current tax law, and do not constitute tax advice.  The tax implications of super investments can impact individual situations differently and you should seek specific tax advice from a registered tax agent or registered tax (financial) adviser.