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W hen you’re receiving the Centrelink aged pension, it’s essential to be aware of how gifting money or assets can impact your payment. The Australian government has rules in place to ensure that people don’t give away significant amounts of money just to increase their pension benefits. So, let’s break down the rules and guidelines for gifting on the Centrelink aged pension.

How does gifting work?

According to Services Australia, Gifting refers to giving away money, income, or assets to others. Any money or assets that are transferred for free, or at a price less than its market value, are considered gifts. This includes monetary gifts, property, and other valuable assets such as a car. When you or your partner make a gift, Centrelink considers it during your income and assets tests. This means that the money or assets you gift may affect the amount of pension you receive.

Understanding the Assessment of Gifts:

Centrelink assesses your gifts in two ways:

  1. Reducing Your Assets: Gifts can decrease the total value of your assets, which may have an impact on your pension eligibility.
  2. Gifting Free Areas: There are certain limits called “Gifting Free Areas.” If your gifts exceed these limits, it can affect your pension payment.

You have the freedom to give away any amount as a gift. However, if your total gifts surpass the value of the Gifting Free Areas, your pension payment may be affected.

The Value of Gifting Free Areas:

The Gifting Free Areas have the same value for both single individuals and couples. They are as follows:

  • $10,000 in one financial year
  • $30,000 over 5 financial years (Note: This 5-year period cannot include more than $10,000 in any single financial year)

An Example of How Gifting Affects Your Pension:

Let’s look at an example of how gifting can impact your pension over a 5-year period:

Example:

1 May 2019: Gift of $8,000.

  • Within the annual gifting-free area of $10,000, the gift is allowed.

1 June 2020: Gift of $13,000.

  • Exceeds the annual gifting-free area of $10,000, so $3,000 is counted in the assets test and included in the income test until 31 May 2025.

1 April 2021: Gift of $7,000.

  • Within the annual gifting-free area of $10,000, the gift is allowed.

1 May 2022: Gift of $11,000.

  • Exceeds the annual gifting-free area, so $6,000 is counted in the assets test and included in the income test. This is calculated as follows;
  • $1,000 is over the gifting-free amount of $10,000, so $1,000 is counted. The total amount gifted within the gifting-free area over the period is $35,000, so $5,000 is in excess. An amount of $6,000 is then maintained as a financial asset until 30 April 2027.

As you can see from this example, exceeding the gifting-free area affects your pension for five years from the date you made the gift. If you happen to receive the gift back, the assessment may change.

Exceptions to the Rule

There are a few exceptions that apply to gifting. One is the ‘special disability trust’ where gifting can take place without any impact on an individual’s aged pension. Another exception is if the gift falls under the ‘deprivation of assets’ rules which refer to gifts for special purposes such as education fees or funeral expenses.

Final Thoughts

Being mindful of gifting and its impact on your Centrelink aged pension is crucial to avoid any potential issues with your payments. Take action now and stay on top of your gifting activities. With guidance from a financial planner to help you understand the rules and stay within the gifting-free areas, you can manage your pension effectively and make informed financial decisions during your retirement.

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References:
How gifting can affect your payment (2023). Services Australia. Available at: https://www.servicesaustralia.gov.au/how-gifting-can-affect-your-payment?context=22526 (Accessed: 27 July 2023).
How much you can gift (2022). Services Australia. Available at: https://www.servicesaustralia.gov.au/how-much-you-can-gift?context=22526 (Accessed: 27 July 2023).
Disclaimer: This advice is general in nature and not intended to be personalised financial, legal, or professional advice. The information provided is for informational purposes only and should not be considered as a substitute for expert guidance tailored to your specific circumstances. Individual financial situations vary, and regulations and policies are subject to change. Therefore, it is essential to consult qualified professionals, such as financial advisors, legal experts, or Centrelink representatives, to obtain advice relevant to your unique situation and to ensure compliance with current laws and regulations.
Review the rules and exceptions before making any transfers to ensure that you are well informed when it comes to gifting on Centrelink Aged Pension.