National Seniors members and supporters often ask us how much they can give to their grandkids to buy a car, put down a home deposit or pay off their HECS debts.
In theory, someone can gift as much as they like. Yet in reality, it depends on your financial circumstances.
Why? Because gifting impacts pension entitlements.
Under our retirement system, means testing rules reduce your pension entitlement the more wealth you have. It is designed to encourage self-sufficiency and reduce budget costs.
You cannot simply give away your assets to increase your pension entitlement, which also applies if you sell your assets for less than they’re worth.
If you could, this would encourage some people to give away their wealth to get the pension and the many pension benefits, which wouldn’t be fair.
Centrelink does allow you to gift up to $10,000 a year. Or a maximum of $30,000 over five years and receive a boost to your pension. If that limit is exceeded, Centrelink will still include the excess amount when calculating your pension (for a maximum of five years from the date of the withdrawal).
Interestingly, these limits were set in 2002. Since then, the cost of living, including house prices and consumer goods, education, and services has risen dramatically.
Yet, housing prices have risen 8.6% per annum from 2002 to 2020, and inflation has increased on average by 2.7% per annum.
While assets test thresholds are indexed in line with inflation each year (in July), gifting limits haven’t changed.
So, while nothing is stopping you from gifting more than the limit – it probably won’t make good financial sense because you are losing an asset that could return an income without any gain in your pension payment.
With many older people wanting to help the next generation to get ahead in life, these gifting limits seem unreasonable.
These rules affect only someone who is ineligible or receives only a part-age pension because of means testing. Those on the full pension may not be affected.
At National Seniors, we believe pension gifting limits should rise to encourage older people to contribute to younger generations – especially those struggling to get into the housing market.
In our 2022 Budget submission to the Commonwealth Government, we recommended the gifting limits increase to reflect inflation and then be indexed annually.
Based on average inflation over the past 20 years, the gifting limit in 2022 should have been $16,000.
Centrelink advises: “Before you or your partner make a gift, contact us to check if it will change your payment. You should call your regular payment line.
We also have a free Financial Information Service to help you make informed decisions about your finances.”
More advice is available here.
Centrelink also warns that they may assess gifts if you give away, sell or transfer them for less than market value. Centrelink says it won’t consider it to be gifted if you or your partner are either:
- Selling or reducing your assets to meet normal costs.
- Selling or transferring an income or asset in return for adequate consideration.
Examples of normal costs include buying a fridge, a holiday or home improvements.
An example of adequate consideration is selling a motorbike for $6,300 on the open market. A sales website says the value of the motorbike could be $6,500.
It’s an adequate consideration because $6,300 was the best offer. Before making any decisions about gifting, contact Centrelink’s free Financial Information Service or seek qualified financial advice to ensure it’s in your best interests.