With Australia’s age pension being subject to an assets and income test, giving away some assets is often viewed as a simple way for part-pensioners, or individuals who do not qualify for age pension(due to excessive assets), to increase or receive some level of pension payment.
Not surprisingly, the government is on to such an obvious strategy. It’s called gifting, and while it is perfectly legal for you to give away whatever you want whenever you want, if you exceed the relevant limits, Centrelink will continue to assess what it calls “deprived assets” for five years.
The limits
Gifting is defined as giving away assets or transferring them for less than their market value. Limits are the same for both singles and couples.
If you give away less than $10,000 within a single financial year and no more than $30,000 over five consecutive financial years, Centrelink will disregard these gifts.
Any gifts in excess of the allowable amount will be assessed as an asset (and, where applicable, subject to the income test) for a period of five years from when the gift was made.
Planning ahead
These rules don’t just apply to existing pensioners. They also concern anyone applying for the age pension, as recent retiree Frank discovered.
Frank has reached age pension age, and based on his current assets and income he should be eligible for a part pension. However:
- Four years ago, he gave his daughter one of his cars, valued at $25,000.
- At the same time, he gave his son $25,000 in cash to match the value of the car.
- Two years ago, Frank sold a beach house on the open market for $210,000. This was $40,000 less than the initial valuation from the estate agent.
- In the past year, he spent $35,000 on home renovations and $15,000 on an overseas trip.
What does this mean for his pension assessment?
The money spent on renovations and holidays counts as normal living expenses, not a gift. Likewise, with $210,000 being the best offer Frank received for his holiday home after it had been on the market for a couple of months, the property would not be considered to have been disposed of for less than its market value.
Whilst he understands that the money he gave to his son is clearly a gift, Frank’s biggest surprise is the treatment of the car. Four years after he gave it to his daughter, it’s about to be treated by Centrelink as an asset Frank still owns.
That means Frank gave away $50,000 in one year. The annual ‘Gifting Free Area’ is $10,000 within a single financial year, so the difference, $40,000, will be assessed as an asset for the next year. This will reduce his pension by more than $100 per fortnight.
If Frank had thought about his pension five years before he was eligible to apply for it, he could have achieved a better outcome.
Seek advice!
To gift or not to gift? It’s an intricate question. The right answer depends very much on personal circumstances, so talk to your financial planner. They can help you work through all the issues, including the complex calculations of the impact of multiple gifts over several years.
The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.
