Contact
1300 732 766

Centrelink gifting and deprivation rules have been designed to prevent people from giving away assets or income over a certain level in order to increase pension and allowance entitlements.

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’.

What are the gifting limits?

There are two separate disposal free areas that apply, which apply to both singles and couples:

  • 1: Up to $10,000 in a financial year
  • 2: Up to $30,000 over a rolling five financial year period (i.e. this financial year and the previous 4 financial years).

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.

Example 1

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.

aged pension gifting example

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.

What happens when the ‘gifting’ rules are breached?

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.

Example 2

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.

Gifting prior to claim

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).

Some gifts are exempt from the rules

Certain gifts can be made without triggering the gifting provisions. Broadly speaking, these include:

  • Assets transferred between members of a couple. A common example is where a person who has reached Age Pension age withdraws money from their superannuation and contributes it to a superannuation account in the name of their spouse who has not yet reached Age Pension age.
  • Certain gifts made by a family member or a certain close relative to a Special Disability Trust.
  • Assets given or construction costs paid for a ‘granny flat’ interest. Certain limits need to be addressed in such a scenario.

Conclusion

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.

Disclaimer

Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

You may also like

Connect With Me
Justin Cilmi
Justin joined the financial planning industry in 2001 and is committed to providing practical and effective solutions for his clients. As a financial adviser, Justin has provided advice to clients across a wide range of areas, including wealth creation, wealth protection and personal insurance, redundancy, retirement and Centrelink and Aged Care planning. Justin’s qualifications include a  Bachelor of Commerce (Majoring in Finance and Economics), a Graduate Certificate in Applied Finance, an Advanced Diploma of Financial Planning and holds a specialist accreditation in Self Managed Superannuation Funds. Justin is also a member of the Financial Planning Association of Australia, holding a Financial Planner AFP® accreditation.