To gift or not?

With Australia’s age pension being subject to an assets and income test, a simple way for partpensioners to increase their pension payments is to give away some assets.

Not surprisingly the government is on to such an obvious strategy. It’s called ‘gifting’, and while it is perfectly legal for you to give away whatever you want whenever you want, if you exceed the relevant limits, Centrelink will continue to assess, what it calls ‘deprived assets’, for five years.

Gifting is defined as giving away assets or transferring them for less than their market value. Limits are the same for both singles and couples. If you give away less than $10,000 within a financial year and no more than $30,000 over five consecutive financial years, Centrelink will disregard these gifts.

Any gifts more than the allowable amount will be assessed as an asset – and, where applicable, subject to the income test – for a period of five years from when the gift was made.

Planning ahead

These rules don’t just apply to pensioners. They also concern anyone who is applying for the age pension, as recent retiree ‘Frank’ discovered.

Frank reached age-pension age and based on his assets and income he should have been eligible for a part pension. However: • Four years ago he gave his daughter one of his cars, valued at $25,000. • At the same time he gave his son $25,000 in cash, to match the value of the car. • Two years ago Frank sold a beach house on the open market for $210,000. This was $40,000 less than the initial valuation from the agent. • In the past year he spent $35,000 on home renovations and $15,000 on an overseas trip. So, what did this mean for his pension assessment?

The money spent on renovations and holidays counted as normal living expenses, not a gift. Likewise, with $210,000 being the best offer Frank received for his holiday home after it had been on the market for a couple of months, the property would not be considered to have been disposed of for less than its market value.

While he understood the money he gave to his son was clearly a gift, Frank’s biggest surprise was the treatment of the car. Four years after he gave it to his daughter it was an asset treated by Centrelink as an asset Frank still owned.

That meant Frank gave away $50,000 in one year. The annual ‘gifting free area’ is $10,000, so the difference, $40,000, counted as an asset for the next year. This reduced his pension by more than $100 a fortnight.

If Frank had thought about his pension five years before he was eligible to apply for it, he could have achieved a better outcome.

Seek advice

To gift or not to gift? It’s an intricate question. The right answer depends very much on personal circumstances, so talk to your financial planner.