To gift or not to gift? What about your pension?

All / 19.09.2018

With Australia’s age pension being subject to an assets and income test, a simple way for part-pensioners to increase their pension payments is to give away some assets.

Not surprisingly the government is on to such an obvious strategy. It’s called gifting, and while it is perfectly legal for you to give away whatever you want whenever you want, if you exceed the relevant limits, Centrelink will continue to assess, what it calls “deprived assets”, for five years.

The limits

Gifting is defined as giving away assets or transferring them for less than their market value. Limits are the same for both singles and couples.

If you give away less than $10,000 within a single financial year and no more than $30,000 over five consecutive financial years, Centrelink will disregard these gifts.

Any gifts in excess of the allowable amount will be assessed as an asset (and, where applicable, subject to the income test) for a period of five years from when the gift was made.

Planning ahead

These rules don’t just apply to existing pensioners. They also concern anyone who is applying for the age pension, as recent retiree Frank discovered.

Frank has reached age pension age and based on his current assets and income he should be eligible for a part pension. However:

  • Four years ago he gave his daughter one of his cars, valued at $25,000.
  • At the same time he gave his son $25,000 in cash, to match the value of the car.
  • Two years ago Frank sold a beach house on the open market for $210,000. This was $40,000 less than the initial valuation from the estate agent.
  • In the past year he spent $35,000 on home renovations and $15,000 on an overseas trip.

What does this mean for his pension assessment?

The money spent on renovations and holidays count as normal living expenses, not a gift. Likewise, with $210,000 being the best offer Frank received for his holiday home after it had been on the market for a couple of months, the property would not be considered to have been disposed of for less than its market value.

Whilst he understands that the money he gave to his son is clearly a gift, Frank’s biggest surprise is the treatment of the car. Four years after he gave it to his daughter it’s about to be treated by Centrelink as an asset Frank still owns.

That means Frank gave away $50,000 in one year. The annual ‘Gifting Free Area’ is $10,000, so the difference, $40,000, will be counted as an asset for the next year. This will reduce his pension by more than $100 per fortnight.

If Frank had thought about his pension five years before he was eligible to apply for it, he could have achieved a better outcome.

Seek advice

To gift or not to gift? It’s an intricate question. The right answer depends very much on personal circumstances, so talk to your financial planner. He or she can help you work through all the issues, including the complex calculations of the impact of multiple gifts over several years.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

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.