Gifting an early inheritance is a generous gesture and would feel very satisfying to see others enjoy. When we’re finally in a financial position to do so, many of us would love to give a helping hand. Gifting money or assets can feel pleasurable but if you’re destined to live to 100 you’ll need to be able to fund your lifestyle for a while yet. What are the implications to your Age Pension payments and financial future if you gift your assets early?
Here are nine gifting limitations and rules you need to be aware of if you plan to receive a part or full Age Pension from Centrelink. Please note, we are not financial advisers. This is a guide to get you started on your own independent research before gifting assets.
If you’re a self-funded retiree, the rules below don’t apply to you. Always seek advice from your professional, qualified financial adviser.
1: Gifting above allowed limits can reduce your age pension payments
Gifting money or assets could potentially reduce your Age Pension payments if you go over the annual and five yearly gifting limits. Centrelink rules around asset limits and impacts to your Age Pension payments change from 1 January 2017.
If you gift more than $10,000 in one financial year, the difference will be assessed as a deprived asset for the next 5 years.
Currently for every $1,000 over the Age Pension asset limit, your pension rate reduces by $1.50 per fortnight. As of 1 January 2017, this reduction rate will literally double to a reduction of $3.00 per fortnight.
To stay on top of the changes and what it means to your assets and income, contact your financial advisor well before January 2017.
2: The two five year gifting rules you need to know about
Right now you can gift up to $10,000 per financial year without any impact to your Age Pension payments. This is capped at $30,000 over 5 consecutive years. This means that you could potentially gift $10,000 on 30 June 2017; another $10,000 on 1 July 2017 and then $3,300 on 1 July 2018, 1 July 2019 and 1 July 2020 – with no impact to your Age Pension payment. Or you could gift $6,000 per year for 5 consecutive financial years in a row. There are many ways you could cut this without reducing your Age Pension payment rate.
The other five year rule is that any gifting to people other than your spouse or partner in the five years before you apply for the Age Pension will be taken into consideration. So you can’t simply reduce your assets by giving everything away before qualifying for a part or full Age Pension income support payment.
3: Gifting as a couple doesn’t mean double the allowance
If you’re recognised as a couple by Centrelink, your total allowed gifting amounts are not double. That is the $10,000 rule per year and the $30,000 rule per five consecutive years applies in total, between the two of you.
4: You need give Centrelink a heads up within 14 days
Whether you receive a generous gift, or the giver of a generous gift, you must notify Centrelink within 14 days.
5: Gifting limitations apply to Centrelink, Department of Veteran Affairs (DVA) and Aged Care payments
Centrelink gifting limitations apply not just to Age Pension payments but also DVA and Aged Care payment rates.
6: Transferring an asset below market value could be a curse
Seek expert financial advice or legal advice before transferring an asset such as property, at less than market value. As parents, we’d love to be able to transfer property in a way that gives our children a great head start in life. Depending on how you go about this, it could see both you and your children paying out money at the other end, in taxes.
Capital gains and stamp duty taxes need to be taken into consideration before you get generous with your assets. What may start out as an asset minimisation strategy to increase your Age Pension rates could bite you. If you and your children decide transferring one of your properties as an investment for them is a good idea, when it comes time to sell, your children will need to pay the relevant portion of capital gains tax.
7: Your goodwill gifting could cripple your lifestyle in later years
If you’re fit and healthy and good fortune is on your side, you may live to receive a letter from the Queen! With longevity on our side in this century, we all need to plan to fund a longer, more active lifestyle. Gifting away too much, too early could see you bereft of funds in your later years when you really need it. Always seek advice from your expert financial adviser before giving generously to others.
8: Children’s relationships may break down and there goes your legacy
While you may want to help give your offspring’s financial future a boost, their partner in life may not be their partner for life. You need to consider what happens to your well intentioned generosity if your children experience marital or relationship breakdowns. Seek legal advice to find out how best to protect your children’s financial future in case of relationships ending.
9: How is your Age Pension rate affected if you receive a gift?
If you receive a one-off gift, it generally won’t be assessed by Centrelink as income but be sure to check in with Centrelink if the gift value is substantial.
Gifts received and gifts given do need to be declared to Centrelink, if either is receiving income support payments from the government. Where a gift of cash is simply being used to cover everyday expenses there is unlikely to be any impact to your income support. Where you invest the gift to earn an income, or grow your assets – for example you decide to buy some shares or property – the gift will affect the income you declare to Centrelink and could potentially reduce your government funded income support.
If you are so lucky to be under the Age Pension age bracket, pop the cash gift straight into your superannuation. No worries!
In summary, you’re likely to have worked hard to get to where you are today. You can gift away as much of your money or assets as you want to. Just know that it may affect your government funded income support, or the funding you have available to see you through well to a ripe old age. Get good advice, always.
For more information about gifting and the age pension
For information about the new asset limits as of 1 January 2017 visit Human Services > Customer > Enablers > Changes Pension Assets Test