To gift or not to gift?

gift

In times like these, it is not uncommon for a parent to want to extend financial support to their children, such as gifting a lump sum of money.

If you give away an asset to anyone, Centrelink may apply the ‘deprivation’ or ‘gifting’ rules and it’s important to be aware of the implications. These rules however, do not apply if assets are transferred between members of a couple.

So what are the rules?

There are two rules, both of which must be considered.

Rule 1: A single person, or a couple, can give away assets up to $10,000 during a financial year without consequence. Any amounts in excess of this threshold are ‘caught as a gift’ and referred to as a ‘deprived asset’. For example, Fred and Millie are an Age Pensioner couple. They give their daughter $15,000 to help her buy a car. Centrelink will assess $5,000 of this as a deprived asset.

Rule 2: A single person, or a couple, can gift no more than $30,000 over a rolling five year period.

If Fred and Millie had gifted $10,000 each year for five years to their son, the amounts gifted in years 4 and 5 would be assessed as a ‘deprived asset’ because the gifted amount exceeds the threshold for a rolling five year period.

What is the effect of a ‘gift’?

Gifts affect the pension because they directly, or indirectly, reduce the assets available for personal use. If you receive income support payments from Centrelink you could be assessed on assets you no longer own which in turn could affect the level of pension income you receive.

Under the assets test, the excess amount or ‘deprived asset’ continues to be owned by the donor for a further five years from the date it was gifted.

Under the income test, the excess amount or ‘deprived asset’ is assumed to earn a rate of interest prescribed by Centrelink for five years from the date of gift.

Also, if you were to gift assets within five years of lodging a claim for income support payments, your payment could be affected. For example, John, age 63, gave his daughter $50,000. Two years later, at age 65, John went to claim the Age Pension.

His assets, however, were still assumed to include $40,000 of the $50,000 he had given his daughter, which affects the amount of Age Pension he receives.

For further information about gifting, ask Berry Financial Services.