While your adult kids may have moved out of home and started a family of their own, it’s in a parent’s nature to help them out financially, no matter their age. But if you’re a mum or dad considering handing over some assets or helping to pay off a loan, there are some things you should bear in mind.
For those in Australia who are currently receiving the Age Pension, or those planning to in the near future, the implications of gifting are substantial with strict government rules on how much financial assistance can be handed out while in receipt of the welfare payment. So, with adult children relying more and more on the Bank of Mum and Dad to get by, here’s a list of the do’s and don’ts of gifting.
Gifting can come in many shapes and forms, which can make it difficult to understand whether your finances may be impacted. In general terms though, gifting is either when you give away assets or transfer them for less than their market value.
This could include anything from selling a rental property you own worth $380,000 to your child for only $200,000, to buying a car for your child as a present or repaying your child’s business loan, because you guaranteed it. Other examples include having 10 per cent of your wages donated to your church or putting money into a family trust that neither you, nor your partner control.
There are some situations when you are allowed to give away your assets though , without it being considered gifting. As outlined by the Department of Human Services, this could be anything from selling or reducing your assets to meet normal costs such as a fridge, holiday or home improvements, to putting money into a family trust that you or your partner retain control of.
Meanwhile, if you decide to sell your $380,000 house for $350,000 on the open market – the best offer at that time – that would also be okay, as would paying for services, such as lawn mowing or cleaning.
There are set amounts for how much you can gift each year while receiving the Age Pension. The limit currently sits at $10,000 annually and $30,000 in aggregate over five years. If you exceed these limits, any extra amount will be regarded as an asset for five years after it has been gifted, meaning even though you gave it away, it’s still counted as something you own.
As an asset, it will count in both the assets test and income test, which are used to determine how much Age Pension you will receive each fortnight. Therefore, with more assets in your possession, you could ultimately end up with a decreased welfare payment.
The Department of Human Services suggests contacting the Centrelink team before you follow through with any gifting to ensure it won’t push you above your limit and affect how much money you receive. Centrelink must also be notified within 14 days following the gifting.