Whilst the rules do not prevent people from making gifts, there are allowable limits in place that will reduce a person’s assessable assets for Age Pension assessments.
Under the Social Security gifting rules, ‘gifts’ exceeding the allowable thresholds will be assessed for up to 5 years, under both the asset test and income test, when determining a person’s Age Pension entitlement. This is known as a ‘deprived asset’.
There are two separate disposal free areas that apply, which apply to both singles and couples:
It is important to note that the thresholds above apply to both singles and members of a couple (combined). That is, a single person has a gifting free area of $10,000 per financial year, limited to $30,000 per 5 financial years. A couple has a total combined gifting free area of $10,000 per financial year, limited to $30,000 per 5 financial years.
Helen wishes to pay for her grandson’s education costs of $5,000 per year. The table assesses the long-term impact on the gifting rules.
This results in Helen’s assessable assets falling by $5,000 per annum or $25,000 over the five-year period. Helen has not exceeded either gifting rule. This is because she has kept under the $10,000 in a single year rule and also within the $30,000 per rolling five-year period.
Where the above rules are not met, Centrelink will consider the excess gift as a deprived asset. This means the excess component will be counted as an asset and income will be assessed for 5 years from the time of the gift, even though the pensioner no longer has access or use of the asset.
After the expiration of the five-year period, the deprived amount is neither considered to be a person’s asset nor income assessed.
Morty gifts his daughter $50,000 to help with a home purchase deposit.
In this case, $10,000 is an allowable gift, meaning $40,000 exceeds the gifting limit for the financial year, so it will continue to be treated as an asset and subject to deeming under the income test for five years from the date of the gift.
Any amounts gifted in the five years prior to grant of payment are also subject to the gifting rules.
As an example, Estelle, who gifted $100,000 to her son George, four years before her application for the Age Pension, will have a deprived asset of $90,000 for the first year of their income support payments (i.e. the one remaining year of the five-year deprivation period).
Certain gifts can be made without triggering the gifting provisions. Broadly speaking, these include:
Everyone’s situation will be different, so it is first important to understand these rules before making gifts, which could impact your Age Pension entitlements.
The rules do not prevent gifts being made, however, getting the timing right can ensure your assessable assets are reduced, which can increase pension entitlements.
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