Check the Centrelink rules before gifting

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‘Gifting assets’ before applying for a pension often will not increase the amount of age pension received. The gifting and deprivation rules prevent you from giving away assets or income over a certain level in order to increase age pension and allowance entitlements. For Centrelink and Department of Veteran’s Affairs (DVA) purposes, gifts made in excess of certain amounts are treated as an asset and subject to the deeming provisions for a period of five years from disposal.

What is considered a gift for Centrelink purposes?

For deprivation provisions to apply, a person disposes of an asset or income when they engage in a course of conduct that destroys, disposes of or diminishes the value of their assets or income, without receiving adequate financial consideration in exchange for the asset or income.

Adequate financial consideration can be accepted when the amount received reasonably equates to the market value of the asset. It may be necessary to obtain an independent market valuation to support your estimated value or transferred value or Centrelink may use their own resources to do so.

Deprivation also applies where the asset gifted does not actually count under the assets test. For example, unless the ‘granny flat’ provisions apply, deprivation is assessed if a person does not receive adequate financial consideration when they:

  • Transfer the legal title of their principal home to another person, or
  • Buy a new principal home in another person’s name.

What are the gifting limits?

The gifting rules do not prevent a person from making a gift to another person, but cap the amount by which a gift will reduce a person’s assessable income and assets, thereby increasing social security entitlements.

There are two gifting limits as follows:

  1. A person or a couple can dispose of assets of up to $10,000 each financial year. This $10,000 limit applies to a single person or to the combined amounts gifted by a couple, and
  2. An additional disposal limit of $30,000 over a five-financial-years rolling period.

The $10,000 and $30,000 limits apply together, meaning that assets can be gifted up to $10,000 per financial year without penalty, but without exceeding the gifting free limit of $30,000 in a rolling five-year period.

What happens if the gifting limits are exceeded?

If the gifting limits are breached, the amount in excess of the gifting limit is considered to be a deprived asset of the person and/or their spouse. The gift is assessable as an asset for five anniversary years from the date of gifting, and subjected to deeming under the income test. After the expiration of the five-year period, the deprived amount is neither considered to be a person’s asset nor deemed.

Example 1: Single pensioner – gifts not impacted by deprivation rules

Sally, a single pensioner, has financial assets valued at $275,000. She has decided to gift some money to her son to improve his financial situation. Her plan for gifting is as follows:

With this gifting plan, Sally is not affected by 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.

Example 2: Single pension – gifts impacted by one gifting rule

Peter is eligible for the age pension. He has given away the following amounts:

In this case, $23,000 of the $33,000 given away in 2017/18 exceeds the gifting limit (the first limit of $10,000) for that financial year, so it will continue to be treated as an asset and subject to deeming for five years. In 2018/19, while gifts totalling $35,000 have been made, no deprived asset is assessed under the five-year rule after taking into account the deprived assets already assessed, i.e. $33,000 + $2,000 – $23,000 = $12,000, which is less than the relevant limit of $30,000.

Example 3: Couple impacted by both gifting rules

Ted and Alice are eligible for the age pension. They give away the following amounts:

In this case, $3,000 of the $13,000 given away in 2018/19 exceeds the gifting limit for that year, so it will continue to be treated as an asset and subject to deeming for five years. The $10,000 given away in 2020/21 exceeds the $30,000 limit for the five-year period commencing on 1 July 2017, so it will also continue to be treated as an asset and subject to deeming for five years.

Are some gifts exempt from the rules?

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

  • Assets transferred between the members of a couple, such as 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 the 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.

Trying to be too smart by gifting prior to claim

Any amounts gifted in the five years prior to accessing the age pension or other allowance are also subject to the gifting rules

Deprivation provisions do not apply when a person has disposed of an asset within the five years prior to accessing the Age Pension or other allowance but could not reasonably have expected to become qualified for payment. For example, a person qualifies for a social security entitlement after unexpected death of a partner or job loss.

 

Liam Shorte is a specialist SMSF advisor and Director of Verante Financial Planning. This article contains general information only and does not address the circumstances of any individual. You should seek professional personal financial advice before acting.

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18 Responses to Check the Centrelink rules before gifting

  1. Michael October 7, 2017 at 9:31 AM #

    Do the gifting rules affect the assessment of a persons assets if they move into an aged care facility?

    • SMSFCoach October 7, 2017 at 11:23 AM #

      Most personal assets are valued at firesale value for Centrelink purposes, so if moving to Aged Care could be discounted substantially as to not make a difference. That Queen Anne dresser your mum thinks is priceless because it came down through 3 generations is only worth $20 in a garage sale. So strictly speaking the answer is yes but in reality not a high monetary affect within the gifting rules as more a disposal than gift. Hard to fit a 3 bedroom home in to an Aged Care unit! Centrelink are realists when it comes to stuff like thus.

      • Michael October 8, 2017 at 7:31 PM #

        Thank you

  2. Bob Goodwin October 7, 2017 at 11:33 AM #

    Good to see the clear explanation of gifting including the 5 year deeming assessment for gifts in excess of the “allowed” amounts of $10k & 30K. I had to deal with my parents affairs some years back and it was patently clear that Centrelink staff didnt understand these rule themselves and were penalising pensioners including my parents due to their lack of knowledge. I had staff hang up on me because they simply did not understand the correct interpretation of the rules? Finally I saw a senior manager in person who conceded that ALL their front-line staff needed retraining on how to interpret gifting guidelines..My parents are long gone but I hope the staff have got it right these days. My financial training background helped me deal with it.

    • SMSFCoach October 13, 2017 at 12:09 PM #

      Yes, its a shame that often you cannot except the first or second answer you get from Centrelink staff and have to push for someone who can really understand the rules before you get fair treatment. As an aside I also always recommend that you take a copy of whatever documents you are providing them and have the copy stamped as proof that you have handed it too them as a lot of documentation seems to get lost in the “system”

  3. Neil October 23, 2017 at 11:01 AM #

    Thanks Liam,

    By your reckoning, I believe my father has been incorrectly assessed with regards to gifting. I have queried this and been assured by a financial officer that no mistake has been made. Armed with your article I guess I can tackle them again!

    For the record, two $15,000 gifts over separate years were counted as $10,000 deprived (correct), but a third gift two years later was counted in its entirety as exceeding the $30,000 limit.

  4. Trevor Wilton November 19, 2017 at 1:53 PM #

    My wife and I are age pensioners..We are shortly going on a weeks holiday.We intend to book and pay for a three bedroom unit so as to allow My son and His family to join us for the week. Would this be considered as gifting?

  5. Mikhail January 24, 2018 at 4:06 PM #

    Are gifting threshold applied on a financial year basis or a calendar year? Although the law says it is 10K per financial year and 30K rolling 5 financial year period, in the example with multiple gifts on DHS website calendar years are used.
    E.g. how long a gift made on 1 Jan 2015 will be counted? According to 5 financial year period rule it should be considered until 2019/2020 financial year end, 30 June 2020. Is that correct? If not, why (any links to law)?

    • Liam Shorte January 29, 2018 at 5:15 PM #

      Hi Mikhail, it is on a rolling 5 year basis from the date of exceeding the gifting limit rather than calendar or financial year. So if you made a gift that took you over the $10,000 per year or in total more that $30,000 per 5 year period then it is exactly 5 years from the date the annual and/or 5 year limit was exceeded that the amount is consider as an asset. Each gift is tested against the annual limit and 5 year rolling limit.

      Example: 4 separate amounts in a 5 year period

      1 April 2015 gifted $10,000 = ok

      1 June 2016 gifted $5,000 = ok and $15,000 in total accepted

      1 April 2017 gifted $16,000 = $6,000 over $10,000 per year limit asset tested until 31 March 2022. So $10,000 allowed and total $25,000 of $30,000 limit used

      1 April 2018 gifted $18,000 = $13,000 asset tested until 31 March 2023 (($18,000 -$10,000) + ($35,000 – $30,000)). So only $5,000 allowed as that takes it to the $30,000 limit for the 5 years.

      $6,000 from the 2017 gift will be counted as an asset until 31st March 2022
      $13,000 from the 2018 gift will be counted as an asset until 31st March 2023

      Overall $49,000 gifted but only $30,000 allowed in the 5 year period.

      It is hard to lay it out in a comments box but I hope this helps. a more clear tabled example may be viewed at https://www.humanservices.gov.au/individuals/enablers/gifting#a3

  6. amy March 14, 2018 at 2:40 PM #

    Hi, I just want to clarify – if my parents sell and gift me some money to buy a house, this will affect their pension? They are limited to $10,000 a year correct?
    What if they sell the house for under market value does this change the situation? Also having a certain amount in the bank also affects their pension too, correct?

    • Liam Shorte March 14, 2018 at 3:06 PM #

      Amy, your parents can give you as much as they want but they are only allowed to gift $10,000 per year up to $30,000 in any rolling 5 year period. If they give your more than $10,000, then the rest is still considered as an asset of theirs for Centrelink purposes and affects their pension.

      If your parents are selling to move in with you then you need to consider a Granny Flat Interest Agreement which would help preserve their Centrelink allowance and secure their tenancy. See here for detail https://www.humanservices.gov.au/individuals/enablers/granny-flat-interest

      If they sell for less than market value then again this may be treated as gifting or deprivation of assets and the difference between the sale value and true market value will be considered an asset. https://www.humanservices.gov.au/individuals/enablers/gifting

      If they sell their home and have the cash proceeds then the money in the bank from the sale may be ignored on the assets test for 12 months but will be deemed under the Income test. See here for detail http://guides.dss.gov.au/guide-social-security-law/6/1/2/40

      I always suggest your parents see or speak to a Centrelink Financial Information Officer before undertaking any strategy affecting their pensions. They will help them understand the consequences and avoid a bad mistake. More detail and contact number here https://www.humanservices.gov.au/individuals/services/financial-information-service

      • amy March 14, 2018 at 3:42 PM #

        Hi Liam,

        If their assets are still lower or within the cap/ threshold will it still affect their pension? i.e./ the threshold is now $575,000 for non-homeowners isn’t it?
        Thank you for your help.

      • Liam Shorte March 15, 2018 at 9:27 AM #

        Hi Amy

        The Non-homeowners threshold for the full pension is now $583,500. This includes their assets and any assets they have gifted above the limits or deprived assets for 5 years.

        You really need to consider personal advice before implementing any strategy like this and include the use of the Centrelink FIS officers.

  7. Graham Hand March 15, 2018 at 9:35 AM #

    Hi Amy, we’ll need to close off this inquiry (and many thanks to Liam) as Cuffelinks is not licensed to give personal financial advice (although Liam is for his clients). You should talk to a Centrelink officer. Cheers, Graham

  8. Jill March 29, 2018 at 1:22 PM #

    I am wanting to make some donations to charity eg The Salvos etc from the inheritance I have just received.
    Is this ‘gifting’ (it is not for family of friends) or are you able to donate separately?

  9. Jill April 4, 2018 at 9:51 PM #

    Hi Leisa
    Thank you for the information.
    Disappointing as wanting to help folk has become harder…
    but where there’s a will there’s a way I guess
    Jill

  10. Nads June 16, 2018 at 3:17 PM #

    sorry im not sure of this is the right place to post, however my question is what happens if someone accepts a gift to help buy a property and they are already receiving help from centrelink in the form of family tax benefit for two young children.
    ? is there a penalty? does it depend on the amount?

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