Gifting and the Age Pension

Upon reaching retirement age, many Australians rely on the Age Pension to supplement their income. However, there are certain rules and regulations that come with receiving the pension, including restrictions on gifting.

Gifting can be a generous and kind-hearted act, but it’s important to be aware of the rules and regulations around it, particularly if you or a loved one are in receipt of the Age Pension. The Age Pension is a vital source of income for many older Australians, and gifting can potentially impact eligibility for this important benefit.

Understanding the rules around gifting and the Age Pension is crucial for those looking to navigate their financial situation in retirement, and can help ensure that they’re able to make the most of their resources while still receiving the support they need. Here’s what you need to know when it comes to gifting and the Age Pension.

What is Gifting?

Gifting refers to the act of giving away assets or money as a gift. It can be done for many reasons, such as helping family members, friends, or charities. However, when it comes to the Age Pension, gifting can have an impact on your eligibility and the amount of pension you receive.

Gifting Rules for the Age Pension

If you are receiving the Age Pension, there are certain rules you must follow when gifting. The current rules state that you can gift up to $10,000 per financial year, or $30,000 over a rolling five-year period, without affecting your pension. Any gifts that exceed these limits will be counted as an asset and can affect your pension eligibility.

Director of RSM Financial Services Australia, Grace Bacon offered further insight into the rules regarding gifting and what pensioners need to be aware of.

“The Centrelink Age Pension is assessed on both the Asset test and Income test, with the recipient receiving the lower benefit based on each assessment,” Bacon explains.

“You can choose to give away up to $10,000 in a financial year or $30,000 over 5 financial years (but cannot include more than $10,000 in a single financial year) before your age pension is impacted.

“Any gifts over these amounts will count towards the Asset test and deeming rules will apply for the Income test. This will apply for 5 years from the date you make the gift.

“An asset that is given away, sold or transferred for less than its market value will also be included in assets and income test.”

It’s also important to note that gifts made within five years of applying for the Age Pension are subject to what’s known as the gifting rule. This rule means that any gifts you made during that period will be assessed as if they were still in your possession and counted as an asset. This can impact your pension entitlements, so it’s important to be mindful of any gifting you do in the lead-up to applying for the Age Pension.

What Qualifies as a Gift?

It’s important to understand what qualifies as a gift under the Age Pension rules. Gifts can include cash, property, or other assets that are given away for less than their market value. It’s also important to note that gifts to family members or friends that are considered “reasonable” can still be counted as gifts and subject to the gifting rules.

It’s a gift if both of these apply:

• you sell or transfer an income or asset
• you get less than its value or nothing in return.

It’s not a gift if both of these apply:

• you sell or transfer an income or asset
• you get money, goods or services to the same value.

There are some exceptions to the gifting rules, such as gifts made for funeral expenses, medical treatment, or certain types of education expenses. If you’re unsure whether a gift will impact your pension entitlements, it’s best to seek advice from a financial planner or Services Australia.

Why Do the Gifting Rules Exist?

The gifting rules are in place to prevent people from giving away their assets or money in order to qualify for the Age Pension. If there were no restrictions on gifting, some people may give away their assets or money to family members or friends in order to reduce their asset levels and qualify for the Age Pension.

The gifting rules also aim to ensure that the Age Pension is distributed fairly and equitably to those who need it the most. By limiting the amount of gifting that can be done, the government can ensure that pension funds are being distributed to those who have a genuine need for financial support.

For those on the age pension, it’s important to be aware of the gifting rules and how they may impact your pension entitlements. While it’s still possible to give gifts to family members or charities, it’s important to be mindful of the limits and ensure that any gifts you make are within the allowable amounts.

Bacon advises that “whilst there are many reasons why pensioners and retirees gift their assets away (for example to help children or loved ones) it is really essential they look after their own needs first and foremost.”

“If they gift too much of their assets away then run into issues with qualifying for the Age Pension, they might not be able to recall the gift, which could cripple their financial situation,” Bacon explains.

“It might also be worthwhile to consider setting up a loan arrangement instead of gifting assets away outright as this can protect the giver as well as the recipient if anything goes wrong.”

If you’re unsure about the gifting rules or have questions about your Age Pension entitlements, it’s best to seek advice from a financial planner or Services Australia. By understanding the rules and regulations around gifting and the Age Pension, you can ensure that you’re receiving the support you need in retirement.

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.