Gifting to improve your Age Pension

Did you know that by assisting financially your family members you can not only help your younger family members or friends, but you can improve your Age Pension at the same time.  

It is called gifting.

But before you jump into helping others, you have to fully understand rules behind gifting and allowable limits of your generosity, otherwise it might negatively impact your Age Pension.

So today I will give you some examples how gifting can help you, but also I will give you examples of what not to do and why.

“Giving freely and giving with a good heart, will never go unrewarded”. 
James Clear

What is Gifting

Gifting can be a great strategy and a rewarding one. Not only you feel happy and satisfied that you can help another person, but your generosity could also improve slightly your Age Pension check. However there are limits you should stick to, otherwise your gift will be viewed as deprivation and you might be financially punished by the Centrelink office and treatment of assets that you have given away.

But what exactly is gifting for Centrelink purpose? 

• If you sell an investment or you transfer your income or your asset to another person or another party and you received less or nothing in return and
• you have done it within the limits of a maximum of $10,000 in one financial year and up to $30,000 within a period of 5 financial years – it is gifting,
• If you exceeded the limit, this is regarded as asset deprivation and the balance above the allowable limit will be treated as a deprived asset & will be counted under Income and Asset Test for the period of 5 years, as if you continued holding this asset.

So in simple terms, you can give away a maximum of $10,000 in one financial year up to $30,000 within a period of 5 years.

What are examples of gifting?

• giving away cash – this is the most straight forward form of gifting, for example you gave your daughter $10,000 to help her with her home renovation.
• Transferring to your granddaughter shares of the value of $20,000,
• you sold your car to your grandson for $5,000, while the market value of the car is $20,000. Then it is estimated that you have given away $15,000 of your assets.
• You invited the whole family for an overseas vacation and you paid $15,000 airfares for all family members

What is not gifting, but rather assets deprivation? 

• Giving away a car of $50,000 value for no payment to you, is not gifting but a deprivation of assets and will require a period of 5 years to disappear as your asset and not being counted under Asset Test
• you transferred your investment property to your daughters, and you have not received any money in return, that is also deprivation of assets. And that includes your family home. Just because your home is an exempt asset for means testing, doesn’t mean that Centrelink will accept your giving it away. You are still depriving yourself of an asset of a significant value that could support you in your future years.
• If you sell an investment property valued at $450,000 to your children for $320,000 Centrelink will view this transaction as you depriving yourself of $130,000
• giving up a control of a company or a trust, if there are assets held within that entity
• lending $50,000 to your niece, but then forgiving that loan is seen as assets deprivation as well.
• Paying off your son’s $100,000 loan because you guaranteed it, this will also be seen as assets deprivation.

What is not included in gifting?

If you sell or reduce a value of your assets because you need to cover your normal living costs, or you spend money for holidays, home renovation this is regarded as you normal living expenses and arrangement and is not treated as gifting.

Moving assets between partners or contributing to your partner’s super is not viewed as gifting.

How can gifting help your Age Pension?

Every $10,000 of your assets is worth $780.00 of Age Pension payments, therefore if you give away the maximum allowable limit of $30,000 year after year over the period of 3 years, then each year your Age Pension could potentially be increased by $780.00pa, hence after 3 years your total Age Pension could be higher by $2,340pa.

Please read: “Real Value of Age Pension in Australia“. I think you could be very surprised with my findings.

My very first recommendation is: organise your money before your first visit to the Centrelink office or completing your application online. Prepare your assets in advance, so you know your entitlement before Centrelink even comes back to you with the reply. It is so much easier to deal with Centrelink when you know the application is final and you do not have to go through time waster such as reshuffling papers, uploading statements and explaining transactions.

Obviously, the easiest way to reduce your assets and your savings under Assets Test is just simply spend it. But spending it for the sake of getting rid of the money is pretty silly, not to mention, that Centrelink is checking your last 5-year transaction history.

If you are to spend your money, do it in the way that it will provide you with a long-term benefit, and helps with Age Pension eligibility at the same time.

Retirement is a Journey, not a Destination, so please be well prepared for the Ride

By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement