Giving while living:
End of financial year rules on gifts and loans
There’s an old joke. Never get between a freeloader and a buffet lunch. Here’s a different version. Never get between a doting parent and their adult children’s’ needs.
We know this adage continues to be true as intergenerational transfers of wealth in Australia (overwhelming from older generations to younger) continue to skyrocket.
Attitudes towards family money transfers vary. Some will subscribe to the so-called SKI theory and ‘spend the kids’ inheritance’ very happily. Others often live frugally in order to leave a substantial bequest. But both these habits are increasingly giving way to the growing trend towards ‘giving while living’.
There are many reasons for this shift and many different ways this is done.
Giving while living could be paying for education for adult children or grandchildren, loans or gifts to purchase a first home, or help with wedding expenses. Given the current rates of inflation and resultant pressure on household budgets, it could also be in the form of short-term support to meet weekly bills including energy, rent or food.
Whenever and however you may choose to give is personal – it’s your money and you decide.
But as with today’s discussion on deeming rates, there are rules for those who are on an Age Pension (or planning to be) which are tied to financial years. As the end of this financial year is imminent, it’s worthwhile taking a look at the rules and how this might affect your loan or gift decision making.
Centrelink Gifting limits
The limits are the same for singles and couples. The most you can gift without it affecting your Age Pension payments is:
- $10,000 in one financial year, or
- $30,000 over five financial years – this can’t include more than $10,000 in any one year
Amounts you gift in excess of these limits will:
- count in your assets test, plus
- have deemed interest applied and this will be included in your income test for five years after the gift date.
So if you’re feeling a generous impulse to help your kids or other nearest and dearest financially, make sure you look before you leap.
And once again, our Customer Services Team leader, Guru Steven Sadler, has come to the rescue for Robert and Mercedes who are unsure of their Centrelink obligations.
How it works for Robert, with 13 grandchildren
We have 13 grandchildren, four adult children plus spouses – 21 in total! We usually give them $100 each for birthdays and Christmas. Would these gifts count towards our gift total of $10,000 per year? Also we give $2500 every year to our local church – is this counted as part of the $10,000?
Hi Robert, great question! Centrelink’s wording around gifting only mentions the amounts which cause the gift to be counted as an asset. Technically the wording does leave the door open for them to count $100 to a grandchild as a gift however there is an element of common sense that needs to be applied also.
In Centrelink’s own words ‘It is optional for you to notify us of any changes in your bank balance of $2,000 or less’ so that is the guide that we follow. In your instance the total amount may be $2,100 however we presume this is divided into multiple, smaller transactions and therefore as no single amount that you give exceeds $2,000 you are not required to notify Centrelink.
And Mercedes, who’s helping out with a wedding
My son is getting married this year and my husband and I plan to give him $25,000 to help with wedding expenses. Will we be penalised since the amount is more than the $10,000 per annum limit?
Hi Mercedes, thanks for reaching out! Given the amount you are gifting is over the limit, you will need to declare this to Centrelink and your pension may be reduced. If your pension is being assessed based on income and not assets there may be no impact to the amount of pension your receive.
Here’s some further information on how ‘giving while living’ could affect your entitlements.
What’s your experience or question?
Do you have a question about a loan or gift? Or perhaps a sum you have paid to someone for a specific purpose, but you you’re unsure if it’s a gift? We’re happy to answer your most pressing questions.