Age Pension and Gifting

What is gifting at Centrelink

At Centrelink, gifting is giving away an item or money, selling an item for less than its reasonable value and failing to take up an entitlement.

For example, Joe has surrendered his Driver Licence and hands his car over to his grandson, Tom. The car has a value of $7,000 but Joe does not want any money from Tom. At Centrelink, Joe has gifted an item valued at $7,000.

Dora helped her daughter, Sue, buy her first home by lending Sue $40,000. The loan agreement between Dora and Sue stated that interest was to be paid at the rate of 5% per annum. Charging Sue interest on the loan would make the loan look ‘fair’ to Sue’s siblings. In practice, Dora has not asked or expected, Sue to pay any interest on her loan as Sue is struggling just to pay her bank mortgage.
Centrelink could say that Dora is failing to collect her interest payments. Dora is neither collecting the annual interest from Sue nor recording that Sue’s loan amount has increased by the accumulating interest. Thus, Centrelink could treat Dora as ‘gifting’ the annual interest payments to Sue.

Eric transferred an interest in the family holiday house to his adult children. Eric retained 25% interest in the coastal property and granted his three children 25% interests. The children each paid Stamp Duty on the transfer of their interest in the Title.At Centrelink, Eric has transferred 75% of the value of the property for no payment

Why does gifting matter for Age Pensioners

The Australian Social Security system provides a safety net income for citizens who are unable to support themselves from work.
The Age Pension is for senior citizens who are “too old to work” enough to support themselves after they have attained Age Pension Age.

But the Australian taxpayer is only going to pay Age Pensions to citizens who have few financial resources of their own. Hence the payment rates for the Age Pension are means tested.
Honest taxpayers are unimpressed by seniors who give away their savings or other valuable assets, and then expect the full Age Pension.

To protect the taxpayer, the Age Pension means testing has rules about gifting.
You can still give away as much as you like but part of your gifts could be ‘excess gifting’ for the Age Pension means tests.

Excess gifting for Age Pensioners at Centrelink

As an Age Pensioner, you may give away as much as you choose whenever you choose. But if the total of your gifts in this financial year exceeds $10,000 then the part in excess of the $10,000 gifting Allowance will an ‘excess gift’ for the Age Pension means tests. Looking back five years from the date of each gift, any excess of your total gifts over $30,000 is also an ‘excess gift’.

The gift Allowances of $10,000 in any financial year and $30,000 over any rolling five year period are the same for single pensioners as for couples at Centrelink.

Consider Bob and Betty who downsized into a retirement village. Bob and Betty gifted $200,000 of the equity released to each of their children Bruce and Bella. Bella was ready to buy a home immediately before her new baby arrived in July. So Bella was paid a gift of $200,000 in May 2018. Bruce finally found the place he wanted and received his gift just in time to pay the deposit on his first home purchase in July 2018.

Previously Bob and Betty had only given their family small gifts. Their full Age Pensions were needed for their modest living expenses. As an Age Pensioner couple, Bob and Betty had gifted $200,000 in May 2018 and $200,000 in July 2018.

Thus the first $10,000 of the May 2018 gift is covered by the Annual Gifting Allowance for the 2017/8 financial year. Thus Bob and Betty have an excess of $190,000 commencing May 2018. The gift to Bruce is paid in the 2018/9 financial year when a new Annual Gifting Allowance is available. Thus $190,000 of the gift to Bruce is also an ‘excess gift’. Once the gift money is paid to Bruce, Bob and Betty have an ‘excess gift’ amount of $380,000.

Expiry of excess gifting for Age Pensioners at Centrelink

Five years after you made a particular gift that gift ceases to be counted in the calculation of your ‘excess gifting’ amount. Your ‘excess gifting’ will expire after five years.

Consider Bob and Betty with an ‘excess gifting’ amounts of $190,000 commencing in each of May 2018 and July 2018.
Their ‘excess gifting’ amount attributable to their first gift of $200,00 to Bella will expire in May 2023.
Then in July 2023, five years would have elapsed since their second gift, the $200,000 to Bruce.
Thus at the end of July 2023 neither of those big gifts would be counted as ‘assessable assets’ for Age Pension means testing purposes.
Bob and Betty could be eligible for more Age Pension once those ‘excess gifting’ amounts have expired.

Ongoing Age Pensioners could expect Centrelink to adjust their Age Pension payment rate on the expiry of each excess gifting amount.

Other seniors could consider applying for an Age Pension five years after their last substantial gifts.

Gifting within the Centrelink Gifting Allowances for Age Pensioners

After giving away a valuable asset, you neither have that asset nor a fully reduced assessable asset amount for your Age Pension assessment at Centrelink. You must wait the full five years for your Age Pension excess gift amounts to expire.

Transferring your holiday house to your adult children is a one-off event resulting in a substantial excess gifting amount. Once the Title of the property is transferred you could be freed from the expenses of ownership. But your Age Pension might not be impacted until five years later when your AGe Pension excess gifting amount expires.

In contrast, gifts of money can be split into smaller portions spread over a longer period. A regular gifting schedule gifts totalling $6,000 on the same day each year could avoid any excess gifting problems.

If each year, Edith celebrated her birthday by gifting a total of six thousand dollars to her family then Edith would not incur an excess gifting amount provided that she did not give away any other significant items.
For Edith the six thousand dollars is less than the Annual Gifting Allowance of $10,000.
Also, five lots of six thousand dollars totals $30,000 which is the five year rolling Gifting Allowance amount.

Mary decides to gift ten thousand dollars each year to help her children. After three annual payments, Mary makes no significant gifts in the following two years.
Mary has also not incurred an ‘excess gift’ amount as she has also limited her gifts to the annual and five year rolling gifting Allowances.

Excess gifting and the Age Pension means tests

You ‘excess gifting’ amounts are treated as ‘financial assets’ for the Age Pension means test. Thus the ‘excess gifting’ amount will be added counted as though it were money in your bank account.

The ‘excess gifting’ amount will be included in your financial assets for the purposes of calculating your deemed financial income for the Age Pension Income Test.
Any ‘excess gifting’ amounts will be counted as ‘assessable assets’ for the Age Pension Assets Test.

In summary, if you give away assets valued at more than $10,000 in a financial year or $30,000 over any rolling five year period then Centrelink will treat you as having the excess gifting amount in your bank account for the next five years. If you choose to give away significant assets then you will need to live with the consequences for at least five years before the taxpayers of Australian would forget about your gifts.

Help to understand how your situation fits in the Age Pension system.

Christine at Financial Care Services writes this Age Pension Guide. She can help you to understand your Age Pension situation.

Ask Christine to help you navigate your Age Pension challenge.

Contact Christine at Christine@financialcareservices.com.au or call 03 9808 0338 to book a consultation.

Christine at Financial Care Services is experienced with Pension Applications and the many Centrelink financial means tests.
Financial Care Services helps seniors with Centrelink Pension issues. Christine at Financial Care Services could help you check if you are eligible for an Age Pension.
An estimate of your potential Age Pension amount before you apply could spare you a rejection letter from Centrelink.

Financial Care Services offers ‘personal financial factual information’ consultations to help you check your asset and income position against the Centrelink Pension means tests. Christine is also able to assist with filling in your Centrelink forms ready for you to sign. She will accompany you to a Centrelink office to lodge your Pension claim form and show your proof of identity documents.

Financial Care Services charges hourly rate fees for ‘personal financial factual information’ consultations, assistance with personal data collation, completing Centrelink forms and attendance at a Centrelink office with you. Email Christine@financialcareservices.com.au now for the Financial Care Services Client Services Guide and Financial Care Services Age Pension Personal Data Checklist.

Disclaimer This Age Pension Guide is based on our understanding of the current Social Security provisions. Your claim for a Social Security Pension will be based on your personal situation as documented to Centrelink and the Social Security legislation and Regulations in force at that date.

Updated January 2019