At Centrelink, the term ‘gifting’ is used when a pensioner gives away an item or money; or sells an item for less than its reasonable value; and for failing to take up an entitlement.
For example, Joe has surrendered his driver’s licence and hands his car over to his grandson, Tom. The car has a value of $7,000 but Joe doesn’t want any money from Tom. Centrelink says Joe has gifted an item valued at $7,000.
Dora helped her daughter, Sue, buy her first home by lending her $40,000. The loan agreement between Dora and Sue stated that interest was to be paid at the rate of 5% per annum. Charging Sue interest on the loan would make the loan look ‘fair’ to Sue’s siblings. However, Dora hasn’t asked for or expect Sue to pay interest on her loan because Sue is struggling just to pay her bank mortgage.
Centrelink could say that because Dora is failing to collect her interest payments she has gifted the annual interest payments to Sue.
Why does gifting matter to Centrelink?
The Australian Social Security system provides a safety net income for citizens who are unable to support themselves from work. The Age Pension is for senior citizens who are ‘too old to work’ enough to support themselves after they have attained Age Pension Age.
But the Australian taxpayers—and the government—only want to pay Age Pensions to citizens who have few financial resources of their own. That’s why the Age Pension is means tested. Centrelink is unimpressed by seniors who give away savings or valuable assets, and still expect the full Age Pension.
The Age Pension means testing has rules about gifting. You can give away as much as you like, but part of your gift (or gifts) could be ‘excess gifting’ for the Age Pension means tests.
Excess gifting at Centrelink
As mentioned, Age Pensioners may give away as much as they choose whenever they choose. But if the total of their gifts in any financial year exceeds $10,000 any amount above that will be an excess gift under the Age Pension means tests.
Then, looking back five years from the date of each gift, anything more than $30,000 in that period is also an excess gift.
The gift allowances of $10,000 in any financial year and $30,000 over any rolling five-year period are the same for single pensioners as for couples at Centrelink.
Consider Bob and Betty. They downsized into a retirement village. Bob and Betty gifted $200,000 to each of their children Bruce and Bella.
Bella was ready to buy a home just before her baby arrived in July. She received her $200,000 gift in May, 2018. Bruce finally found the place he wanted and received his gift to pay the deposit on his first home in July 2018.
The first $10,000 of the May 2018 gift is covered by the Annual Gifting Allowance for the 2017/8 financial year. Bob and Betty have a gifted excess of $190,000 commencing from May 2018. The gift to Bruce is paid in the 2018/9 financial year when a new Annual Gifting Allowance is available. Thus $190,000 of the gift to Bruce is also in excess.
Once the gift money is paid to Bruce, Bob and Betty have an excess amount of $380,000.
Excess gifting and the Age Pension means tests
Excess gifting amounts are treated as financial assets for the Age Pension means test. It’s counted as though it were money in your bank account and will be included in your financial assets when calculating your deemed financial income for the Age Pension Income Test.
Excess gifting amounts will also be counted as assessable assets for the Age Pension Assets Test.
In summary, if you give away cash or assets valued at more than $10,000 in a financial year or $30,000 over any five year period, Centrelink will treat you as having gifted the amount into your bank account for the next five years.
If you choose to give away significant assets, you will need to live with the financial consequences for at least five years before Centrelink forgets it.
Christine Hopper is the Director of Financial Care Services, an independent financial advisor.
Financial Care Services is focused on mature people considering a change of lifestyle including retirement and particularly new living arrangements in: retirement lifestyle community villages; granny flats; supported or assisted living; and Commonwealth regulated aged care. She can be contacted through https://financialcareservices.com.au.
Christine talks to Centrelink as a customer receiving a Carers Allowance and on behalf of clients. She understands the range of Department of Veteran Affairs and Centrelink income support benefits, their relevant means tests and eligibility conditions. She’s an actuary who also holds a Bachelor of Science, a Diploma of Financial Planning and a Certificate of Theology.