How Gifting can Impact your Age Pension
-By Kevin Cuthbert
Financial Advice Matters authorised representative Kevin Cuthbert, reflects on some of the common questions he receives around the issue of gifting.
We all love to receive a surprise gift! But we need to be mindful that sometimes the giver can be impacted financially. Even with good intent we can lose out.
It is natural to want to assist our connected communities and family where we can. It is rewarding to do so but it is important to understand, particularly if someone is in or approaching the aged pension age, that it can have a negative impact on entitlements. We can also be approached directly by our loved ones to provide support. Lets explore some of the basics to be aware of:
WHAT IS GIVING?
This can be something like:
Helping our children make ends meet in the current environment
Sponsoring a child’s education
Making a regular donation to a good cause
Passing on part of an Inheritance you received
Forgiving a loan
Minding the grand children
Meals on wheels
School tuckshop
Helping at St Vincent de Pauls’ or the Salvation Army
The assistance takes many forms however the most common is generally financial support and we generally do not hesitate particularly if family is involved.
WHO IS IMPACTED?
We do not think or consider how our actions can impact on our lifestyle.
If you are a Self-funded Retiree with substantial net worth there is not a problem.
If you are a Self-funded Retiree and you are looking to reduce your assets to become eligible for a part pension then you will need to be careful.
If you are currently in receipt of a part or full pension, then you need to be aware of what you can and cannot do as it could impact on the benefit you receive.
The current rules apply whether you are a couple or an individual. They apply from when you first make your application for the Age Pension, but also 5 years prior to making an Age Pension application.
The next question is “Have you made any gifts in the past 5 years?”.
HOW DOES IT IMPACT ME?
Centrelink takes the stance that a gift is any money or property that you give away and for which you do not receive adequate financial consideration. Gifting is the term often used when you dispose of an asset, property, or income for less than its market value. It can also be called disposal.
From the list below above, these actions are not finance based and do not have an impact:
Minding the grand children
Meals on wheels
School tuckshop
Helping at St Vincent de Pauls’ or the Salvation Army.
However, the below are finance based and do have an impact.
Helping our children make ends meet in the current environment
Sponsoring a child’s education
Making a regular donation to a good cause
Passing on part of an Inheritance you received
Forgiving a loan
The terminology used by the Government is “Allowable Disposable Amount”. The Allowable Disposal Amount is the maximum you can give without your benefits being affected. Gifting amounts in excess of what is permitted is considered deprivation and may impact your benefits.
WHAT ARE THE RULES?
The rules are:
The allowable amount you can gift in each financial year is $10,000
However, you cannot gift more than $30,000 over a 5-year period
Be aware that if you exceed these limits the following will apply:
The excess will count in your assets test
Deeming will be applied and will be included in the income test
EXAMPLE 1
We have John and June who have three adult children. Every year they give their three adult children $3,000 each to assist them with their families. This money is accumulated savings over the 12-month period. This started from when John and June went onto the Age Pension and it has become an annual event. They have been informing Centrelink each year. John and June are on a part pension and they are assessed under the Assets Test.
What is the Impact?
John and June were impacted in the following way:
For the first three years there was no impact.
In year 4 their Assets are increased by Centrelink by $6,000.
This was due to John and June exceeding the 5-year cap of $30,000.
Reduction in their benefits by $18 per fortnight in March 2019.
In March 2020 their benefits will reduce by a further $27 per fortnight.
The reduction of $45 per fortnight will be applied until March 2024 when the initial $18 per fortnight will drop off.
EXAMPLE 2
Madge and Margaret have decided to downsize their home as it has become a bit big for them. They have one child, Mary. Mary has recently married to Mike and has a sizable home loan. They decide to give Mary $200,000 from the sale proceeds.
What is the Impact?
Madge and Margaret were impacted in the following way:
The $200,000 less $10,000 ($190,000) will be included in both the Assets and Income Test from date of giving.
This will reduce by a further $20,000 over the next 2 years where in the third year $170,000 will be included as an Asset and deemed as income.
From year 3 to year 5 $170,000 will be included in the calculations for Assets and Income.
The Pension will reduce by $570 per fortnight in year 1, $540 per fortnight in year 2, $510 in years 3 to 5.
EXEMPTIONS
There are a small number of exemptions where special gifting rules apply. They include:
Granny Flats
Work
Special Disability trusts
Transferring funds between Partners – this could allow one of the spouses to be eligible to apply for the Pension whilst the other has not reached Age Pension Age.
6 TIPS TO CONSIDER:
For many gifting is a way of passing wealth while we are still able to see the impact it makes on those around us.
Just be prepared, it can have an impact on you now.
Plan Ahead
Understand the rules
Keep Centrelink Informed
Utilise Centrelink – Financial Information Services resources– fact sheets & calculators
Don’t act on advice from friends and family
Seek professional advice
As with all things financial there are several rules to get up to speed with and you don’t need to do it alone. Kevin Cuthbert is a Financial Adviser with Financial Advice Matters and helps families with similar questions and situations regularly. Get in touch today via 07 3721 4400.
Source: Service Australia (November 2019), Age Pension: ‘Who Can Get It’. Available from: https://www.servicesaustralia.... [accessed 20 March 2021].