It’s the Season for Giving… or Is It?
By Tony Densley
Gifting, or financially assisting family or friends by giving away some of your assets or accumulated retirement savings, can be a great way to help out younger family members or friends.
But before you gift a significant amount, it’s important to understand how this could impact your Age Pension or other social security benefits you receive now or in the future.
What is gifting?
Gifting can be a viable strategy as gifts given within certain limits can not only provide you with the satisfaction of being able to help others, but also slightly increase your Age Pension entitlement. However, exceeding these limits could result in the gift continuing to be treated as your asset for a period of time, even though you no longer hold this asset.
But gifting isn’t just about giving away an amount of your savings. There are a number of other scenarios where gifting rules may apply, for example:
Transferring shares to someone without receiving the full market value in return.
Giving up control of a company or trust which holds underlying assets.
Transferring an investment property worth $300,000 to another person for less than its true value (for example, for $200,000).
Forgiving a loan someone owes you.
Providing money to a company or trust you don’t control, without a loan agreement showing the amount is to be repaid.
What's not included as gifting?
You wouldn’t be viewed as gifting an asset when you sell or reduce any of your existing assets to meet normal living costs – for example, to pay for a holiday or fund renovations to your home.
You’re also able to transfer assets between yourself and your spouse without the gifting rules applying. Additionally, there may be opportunities to contribute assets to your spouse’s superannuation account and increase your Age Pension entitlements, where your spouse has not yet reached their age pension age.
How much can you give when gifting?
While you are not limited in the amount, there are limits within which a gift wouldn’t affect your Age Pension benefit. Centrelink use two tests to determine if you are within or outside the allowable gifting limits.
Firstly, individuals and couples combined can gift up to $10,000 per financial year or up to $30,000 over a five financial year period and remain within the gifting free area.
Any amounts gifted outside this limit will result in the excess amount being treated as a ‘deprived asset’ which will be counted as an asset under the assets test and deemed under the income test.
How can gifting affect your Age Pension?
The deprivation provisions are designed to limit the potential for social security recipients to reduce their assets and as a result reducing the impact of the income and asset means tests on their benefit entitlement.
Where a person has given away, destroyed or diminished the value of an asset or given away an amount in excess of the gifting free area, Centrelink will treat the individual as continuing to hold the asset under the asset and income means test for five years from the date of the gift.
Concerned about the impact of gifting?
Given the complexities involved in planning for and calculating the impact a gift may have on your Age Pension or other Centrelink benefit. If you wish to discuss this please contact me and avoid an issue down the track.
Bridging the gap with Face Up Life
At Face Up Life, we believe retirement should be filled with choice, clarity, and enjoyment, not uncertainty or stress. Our role is to walk beside you and help you:
Clarify your goals and ideal retirement timeline
Understand your income picture, with and without the Age Pension
Identify strategies to optimise your pension entitlements
Make confident, informed decisions about how your retirement is funded
Imagine waking up on your first day of retirement feeling calm and assured, knowing your finances are working in the background, supporting the life you truly want to live.
Book your free initial call today and let’s bridge the gap between where you are now and the future you’re looking forward to, and let’s bridge the gap between where you are and where you want to be.
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