Age Pension gifting rules: How giving away assets affects your Pension

Gifting some of your assets or savings to assist family, friends or worthy causes can be an excellent way to aid younger members of your social circle or society at large. However, planning is key to make sure you understand the financial consequences.

For example, giving away assets or selling them for less than they’re worth reduces the money you will have for retirement. Centrelink’s gifting rules also mean your Age Pension may not increase as much as you expect, and it could even be cut.

What is gifting?

For Centrelink purposes, gifting refers to selling or transferring savings or an asset for less than its value or without receiving anything in return. If you receive adequate compensation, it is not considered a gift.

Gifting limits

While you can give away as much as you like, there are limits within which a gift can immediately lower the amount you have being assessed in Centrelink’s means tests.

The limits are $10,000 per financial year and $30,000 over five financial years. They apply together, and Centrelink calls this the ‘gifting-free area’. Anything you give away above either limit is a ‘deprived asset’.

The limits are the same whether you’re single or part of a couple. For a couple, they apply to the total you both give away, not to each of you.

In the example below, the $5,000 gift in year 4 is under the yearly limit but is still a deprived asset, because $30,000 has already been given in the previous three years.

How the gifting limits work

Illustrative gifts.

Source: Services Australia

Deprived assets are counted in the assets test and generate deemed income under the income test for five years from the date of the excess gift. The rate of Age Pension you get is the amount calculated by the assets test or the income test, whichever is lower.

This arrangement is designed to limit the potential for someone to reduce their assets for the purpose of increasing their Age Pension.

If you gift something above the limits that was already being assessed, your payment rate will not go down, but it also won’t increase significantly until the deprived asset stops being counted when the five-year period ends.

If you gift an asset that was not included in the means tests, such as your home, your payment may reduce immediately because you will have a deprived asset counted that was not assessed before. An alternative to simply giving away all or part of your home is to create a ‘granny flat interest’ by exchanging the value you’re giving away for the right to continue to live in the property for life. Granny flat interests are assessed differently by Centrelink.

Gifting $300,000: savings compared with your home

Illustrative example assuming no earlier gifts. Giving away your home can also change your homeowner status, which changes the assets test thresholds.

Source: Services Australia. SuperGuide calculations

When applying for payments from Centrelink or the Department of Veterans’ Affairs (DVA), you must disclose gifts made in the last five years. Once you’re receiving a payment, you must tell Centrelink or the DVA about any significant change to your circumstances (including giving a gift) within 14 days.

What counts as gifting?

As mentioned earlier, for social security purposes, gifting is not simply about giving away your money or savings. Examples include:

• Transferring the ownership of investments for less than their market value (the difference between the market value and the payment you receive is a gift)
• Giving up control of a company or a family trust that holds assets inside it
• Forgiving a loan someone owes you, in part or in full
• Paying your grandchildren’s school fees.

What does not count as gifting?

In addition to the transfer of assets where you receive fair market value, other transactions that don’t count as gifting include:

• Selling assets or spending savings to cover regular living expenses, such as home improvements or a holiday
• Transfers between spouses, such as contributions to your partner’s super account
• Gifts made to the Special Disability Trust of an immediate family member (within limits)
• Assets given or construction costs paid for a ‘granny flat’ interest*

*If the amount paid for a granny flat interest is more than the cost of purchasing the property or paying for required renovations to accommodate your residency, Centrelink will apply a reasonableness test to determine if you have deprived assets.

Is it a gift, and is it assessed?

Granny flat interests and Special Disability Trusts have their own limits and conditions, so part of the amount can still be treated as a gift.

Source: Services Australia

Timing of the gift

An important thing to consider with gifting is timing. Centrelink only looks back at the last five years. If you gift away your holiday house at the age of 61, then when you turn 67 and claim the pension, that gift will not be assessed.