And why does Centrelink care?
A few weeks ago we recounted how the gifting rules worked for Mary, Jeffrey and Hannah. We received a lot of questions from members who were totally confused as to whether they had loaned or gifted money to family and friends. And some wondered why it is any of Centrelink’s business anyway?
Today we look at the difference between a loan and a gift from the perspective of Centrelink.
The important thing to understand is that there is a difference and your Age Pension entitlement could change depending upon whether you decide to give or loan money.
Let’s start with how this affected Sam.
And we can then go through the rules that meant he was able to maximise his income once we explained his options.
Why Sam gifted early
Sam has just turned 61 and will become eligible for the Age Pension when he turns 67. He wants to loan his son $100,000 sometime in the future, to help him with home renovations. He can call it a loan, but he doesn’t expect his son to repay the money.
When he learns about the ‘five year rule’ which is applied to gifting for Age Pension entitlement he realises it is smarter to gift this money now.
How will this work?
The full amount of $100,000 will be linked to Sam’s ‘gift history’ for a period of five years, despite the fact that he has yet to apply for the Age Pension.
He gives the full amount to his son, and Centrelink considers that this amount decreases by the $10,000 per annum gifting allowance each year up to a maximum of $30,000 in a five year period as seen below:
| Year 1 – Sam is 62 | $90,000 gift applies |
| Year 2– Sam is 63 | $80,000 gift applies |
| Year 3 – Sam is 64 | $70,000 gift applies |
| Year 4 – Sam is 65 | $70,000 gift applies |
| Year 5 – Sam is 66 | $70,000 gift applies |
| Year 6 – Sam is 67 and applies for the Age Pension | No gift applies. Sam’s ‘slate’ is wiped clean after 5 years and the gift will have no impact on his Age Pension |
Because Sam gifted the money more than five years before he was old enough to apply for the Age Pension, he will not be affected by the gifting provisions.
Had Sam waited until he was applying for the Age Pension to gift the money, he would have been impacted less Age Pension each year comprising:
- $7,020 or $270 per fortnight for the first year,
- $6,240 or $240 per fortnight in the second year
- and then $5,460 or$210 per fortnight for the next 3 years.
That’s a total of $29,640 less pension over the first 5 years, just because he waited rather than gifting early
The rules on loans and gifts
Loans
In essence Centrelink requires certain evidence to define your loan as a loan. This includes either a formal contract, or an email exchange, stating terms and conditions such as repayment amount and schedule, length of loan and any interest that will be paid. You also need to supply evidence of the current loan balance when you apply for the Age Pension. As loans are financial assets, income is deemed from the current balance and the onus is on you to update Centrelink as the balance reduces over time . If repayments are not made or you do not update Centrelink, then the full balance is deemed under the asset rules on an ongoing basis.
Gifts
If, on the other hand, you gift money, you are not expecting it to be repaid. You can gift up to $10,000 per year up to a maximum of $30,000 within 5 years.
Here are the rules on these limits.
The limits are the same for singles and couples. The most you can gift without it affecting Age Pension payments is:
- $10,000 in 1 financial year, or
- $30,000 over 5 financial years – this can’t include more than $10,000 in any year
Amounts you gift in excess of these limits will:
- count in your assets test, plus
- have deemed income applied and this will be included in your income test for 5 years after the gift date.
If you change the status of a loan – say you loan money and then forgive the repayments, then this becomes a gift and the gifting rules apply from when the repayments are forgiven.
So do you lend or give money to the kids? Who would have thought there was so much to think about.
You can read more about gifting here and as always you can check your entitlements below.
I’m on the pension(67) and I want to give my child $100,000 as a deposit on a house..can I do that
Hi Colleen, thanks for reaching out. Yes you can gift that money however you will need to notify Centrelink and show evidence of the amount and date gifted (bank statement is best). Then, as per the table in the article, over the next 5 years the gifting rules will be applied to the $100,000 gifted.
I am currently above the asset limit for the aged pension. I want to loan $100,000 to each of my adult children to help them reduce their home loans, with a legal agreement that they won’t spend it on anything else and will repay it if asked (for example if I relocate and buy a more expensive home). Loaning this money will bring me below the asset threshold. How will Centrelink view this? Will it be seen as a gift (meaning that in 5 years I can begin receiving the aged pension? Or will the money be regarded as an asset indefinitely?
Hi Cathy, thanks for seeking clarity! You are correct that Centrelink will treat these amounts as gifts meaning that for 5 years from the date given they will still be counted as assets of yours however after that they will not and so you could potentially apply for the Age Pension.
I want to loan my son $30,000 to help complete home improvements. He will repay me when he sells his boat….. how do I treat this as regards centre link ?
Hi Christine, thanks for seeking our support! There are a few things to consider in this situation, such as if it is a loan or a gift. We’d love to talk you through your options and the pros/cons of each so you can make the best decision for yourself. Book a consultation with us HERE.
Is a loan still included as an asset as well as being deemed.
Hi Michael, great question! Yes you are right, loans are considered assets based on how much is owing as well as having income deemed on that same balance.
I sold some shares at age 65, so this falls in the 2021-2022 tax year. Due to circumstances I believe my “retirement” will happen when I am about 70 years of age. From the shares I sold, I received $4,500.00. Should I apply for pension before the 5 year rule, will that affect my pension?
Hi Carla thanks for the query! The scenario you have mentioned would not be counted as gifting. You owned an asset (shares) and then sold that asset. The proceeds from the sale are not counted as a gift. Gifting/lending only applies if you were to sign those shares over to someone else without getting paid for them (for example).
What about if the mother joins in the purchase of a house in order for her to also live in with the son? Is is a gift or a loan?
Hi Gerry, good question! In general this scenario would not be counted as gifting because in exchange for the money, the mother is receiving the right to live in the house. Gifting is when you give away an asset for either nothing or less than it’s market value. Centrelink refer to these scenarios as Granny Flat Interest and you can read more about it HERE.
I’m 73 and on aged pension with assets in super and savings. I am in a retirement village and qualify as a non home owner.
I want to contribute (along with my exhusband) to a loan to our disabled son (a disability trust is not applicable) to buy a flat.
The return rate should match his capacity to repay as he is on a disability pension. My contribution would be around $150000.
If that comes out of my super, would my deemed income reduce and therefore my pension increase? And could i added up to $30000 as a 5 year gift for purchase costs, would that be a better arrangement than loaning him the total $180000 (approximately)?
Hi Vicki, great work on the homework and planning you’ve clearly put into this! With regard to lending the $150,000 unfortunately this will not see any change in your pension because instead of happing super as an asset, Centrelink will assess the loan as an asset instead. Centrelink will still apply the deeming rules to the loan. You are correct about the gifting in that gifting within the allowable amounts means a legitimate reduction to your assets and no deeming applied as opposed to lending the full amount. Do bear in mind though that the gifting rules are $10k in one year up to a maximum of $30K in 5 years. So if you gift the full $30K in one go you will still have $20K of that counted as an asset until a 12 months has passed.
I am 60 my husband is 64, we have been married 5 years and both have children from previous marriages. I would like to gift my children some cash 5 years before I retire.
How will this impact my husband’s Centrelink claim in 3 years time (our plan is to pay down the mortgage and have total assets the single person limit (excluding my super balance)
Hi Fiona, great to hear you are trying to plan ahead! When your husband applies for the pension, he will be assessed under the couple’s thresholds/pension rate because it is based on his relationship status, not whether you are both applying vs only one. Therefore if you were to gift money now, in three years time your husband will need to declare it to Centrelink however it will only impact his Age Pension for 2 years.
As you are trying to plan ahead Fiona, you may benefit from having a Retirement Advice Consultation with our financial adviser. They may be able to help you better understand your needs and goals in retirement and some of the actions you can consider to help you achieve those goals. The consultation can be either online or via phone call, goes for up to 45 minutes and costs $150.
CLICK HERE to book now.
I am 61, and going to sell an investment property with the balance of $400,000. Can I give $400,000 to my son as gift and have no impact on the Pension when I turn 67?
Hi Vin, thanks for getting involved in the conversation. This is very much in line with Sam’s scenario from our article. Yes if you gift an amount 5 years or more prior to applying for the Age Pension then there is no impact to your pension.
I first discovered the gifting limits (re my parents) in 2011. In 2022 the amount has not been increased even though the actual value of the amount has diminished considerably. Where is the advocacy for an increase, eg by the CPI per annum for the last 11 years.
Can both people in a marriage gift $10k per year without affecting the pension? Also, if you are already below the assets and income limits does this mean your pension won’t be affected if you exceed the gifting limits?
Hi Gary, thanks for reaching out! Unfortunately the gifting limits for couples apply to both of you combined, not per person. if you are under the minimum thresholds then you are correct that there is no change to your full pension from gifting.
How is it assessed if the mother contributes to the costs of renovating a house in order for her to live in it with her daughter?
Hi Becky, we actually already had this scenario raised in the comments by Gerry but please note the following. In general this scenario would not be counted as gifting because in exchange for the money, the mother is receiving the right to live in the house. Gifting is when you give away an asset for either nothing or less than it’s market value. Centrelink refer to these scenarios as Granny Flat Interest and you can read more about it HERE.
Hi, My 95 YO father, who is on a “part” pension (about 80%) loaned his grandson $22000 18 months ago. None of which has been repaid, and probably will not be. I now am a nominee for his centerlink and are trying to tidy his finances up. The amount is on his centerlink file.
Can I / Should I alter that to a $10000 gift for this financial year and again next ? If so, would it benefit his centerlink payments overall ?
And how do i do it .
Thanks
Hi Ian, thank you for sharing your Father’s scenario with us! It definitely sounds more like a gift then a loan given how unlikely any kind of repayment is. As nominee you can call Centrelink on 132 300 and explain to them that although the money was initially intended and declared as a loan, it is actually a gift. Centrelink will then assess it as a gift from the day the money was given (18 months ago) and presuming there have been no other gifts your dad will actually get $20,000 taken off the amount ($10K gifted last year and then another $10K this year) so only the remaining $2,000 will be held against him for one more year before it too will then cease to impact Dad’s pension.
Hi, I am single and was born on 30/08/1956. I own my home. I have 330K in super, $36K in shares, and $20K in assets. I am not working. My income is from sales in shares and rollouts from Super. I am pondering whether I should put $165K into a Retirement Income Account and the remaining $165K into an Account based pension. I realize there are pros & cons to an Account based pension, as its payments are not at a fixed rate and are subject to interest rates. Am I correct an Account based pension benefits someone the longer they live? Also is it correct withdrawals from an Account based pension cannot be touched, unlike a Retirement Income Account?
Hi Jan, thanks for seeking our help! This is something that can be really confusing for most people. The best thing to do is book one of our Understanding More About Super consultations, this way our advisers can properly understand and explain your options along with the pros/cons of each. Please CLICK HERE to learn more.
I gifted 20000 to son and daughter ( 10000 each ) in 2019 in the same financial year. Can my son pay me back now, so I have only gifted 10000 in 2019 and I gift him 10000 again now?
Also I found your advice to other contributors very good and useful because centrelink rules seem to be confusing and it cleared up a lot of points betweeen loan and gifting.
Hi Fred, thanks for the compliment! Great question regarding repayment of gifts too! The answer to your questions is that yes, if a gift is repaid then Centrelink remove the original gift and assess you based on your current asset balance. However in the situation you have mentioned repayment would not be necessary as you have only gifted $20K in total so you can gift another $10K and still be within the $30K in 5 years rule.
I want to lend $20000 to my daughter to pay for the lawyers that she is going to engage due to the breakdown of her marriage and her separation and child custody issues as her husband has taken away her access to their joint savings and won’t let her live in the house or see her children. This is not to be a gift but will be repaid after the marital home is sold, their mortgage is paid off and then she will pay me back. I want to do it at zero per cent interest. I’m 64 and on a disability pension. $5000 will come out first from a joint account my wife and I have, my wife is on a carer pension. The remaining $15000 will come from the sale of shares that are in my name, only, these shares have been held by me for more than 12 months and were obtained because of an inheritance from my deceased father. The $5000 will be loaned from the 2022-2023 financial year and the money from the shares will be loaned in the 2023-2024 financial year. There will be a loan contract, signed by my daughter and me. Is what I want to do gifting or a loan? I won’t be ‘forgiving’ the loan. I realise that the loan would be classed as assets, but the $5000 in savings and the $15000 in shares are already classed as assets.
Hi Phillip, thanks for seeking our support! What you are proposing would be classed as a loan as you will have a formal agreement and plan for repayment. This isn’t necessarily a bad thing however given the amount you are looking to lend I would strongly urge you to consider gifting it as it would likely mean an increase in your Age Pension payments. I will send you an email separate to this comment with further details on how we can help.
If I withdraw $100,000 from my super account pension to gift or loan $100,000 to my son, my income from my super will be reduced. How will CenterLink take account of this in the income test?
Hi Steve, thanks for your question. Centrelink would update the balance of your super accordingly however in this scenario where the money is being either gifted or lent, deeming will still be applied to the gift/loan the same as super so ultimately there would be no significant change in how it is assessed.
Hi there, I want to loan my daughter $100,000 over ten years noting I’m turning 70 in May this year. Retired and have no accessed my pension. How will this impact receiving my pension?
Hi Halina, thank you for requesting clarity! There are a few ways this can impact you and there are alternate ways you could go about getting the money to your daughter (such as gifting instead of lending). To understand each of your options and their respective pros/cons it would be best to book a consultation with us HEREso we can go through everything together with you.