Did you know that about 60%[1] of people aged 67 and over receive an age pension? Some of these pensioners don’t receive a full pension. This is because Centrelink looks at your wealth based on your income and assets and if either exceed set limits they reduce your pension.
Gifting assets will make you poorer but can increase your age pension. You might like being Santa but don’t forget the Centrelink Christmas grinch – deprivation. Deprivation rules claw back any pension increase you would otherwise have got from gifting and reducing your assets.
Increasing your age pension through gifting
Gifting can reduce your income and assets and result in a larger pension for those getting a part pension rather than a full pension.
As mentioned, the age pension gradually decreases as your income or assets surpass Centrelink’s set limits. Eventually, the pension entitlement phases out entirely, making you ineligible for an age pension. The income or asset test that gives you the least amount of pension is the test that applies to your pension.
As an example, if you are not getting the maximum age pension because your assets are too high, then by decreasing your assets by $10,000 (for example by gifting) you will increase your pension by $780 per annum or $30 per fortnight.
You might be generous, but Centrelink has its limits
Centrelink set limits on how much you can give away. They won’t stop you from giving away too much but they won’t continue to increase your age pension beyond a point just because you have less assessable assets.
Centrelink lets you give away $10,000 worth of assets each financial year BUT over the course of five consecutive financial years the total amount must not exceed $30,000.
This means if you give away more than $10,000 in a financial year, Centrelink will assess you on a ‘deprived asset’ equaling the excessive amount for the next five years. You can think of this ‘deprived asset’ as being an imaginary bank account that Centrelink assume you have when means testing your age pension. After five years, Centrelink ignore the ‘deprived asset’ and only assess you on what you own.
Similarly, if you give away $10,000 every year, then by the fourth year you will have exceeded the allowable rolling five-year limit of $30,000. Again, Centrelink will assess you on a ‘deprived asset’ equaling the excessive amount for the next five years.
What gets caught in Centrelink’s gifting limit?
A gift includes any situation where you give something with no payment or for a minimal payment. Common examples include:
- Helping your children buy their first home
- If you’re assisting your children with purchasing their first home, be aware that unless there is a genuine loan agreement between the Bank of Mum and Dad and the child, this will be treated as a gift by Centrelink.
- Gifting to grandchildren
- While giving presents to your grandchildren is lovely, it is still considered a gift. However, you would need to buy a lot of Tonka trucks for this to be a problem for Centrelink.
- Charitable Donations
- Supporting a cause is commendable but it is still considered a gift, and Centrelink does not take good intentions into account.
- Selling assets below market value
- Selling your car for less than it’s worth (for example to a grandchild) is a gift, neither Centrelink nor the State’s revenue office will believe your new Audi is worth only $500.
Before you play Santa, make sure you understand the gifting limits and how Centrelink’s rules could impact your pension entitlements. Getting good financial advice from a qualified adviser can ensure that your generosity is repaid with a larger age pension.
[1] Australian Institute of Health and Welfare, Income support for older Australians https://www.aihw.gov.au/reports/australias-welfare/income-support-older-australians
