We can all get a dopamine hit from choosing the perfect gift, knowing the happiness it can spark. But in the realm of financial planning, not every act of generosity comes without strings. Without careful thought, well-meaning gifts can backfire, leaving consequences that linger like the ghosts of Christmas past – haunting your retirement plans and even your eligibility for government support.
Whether it’s helping family, celebrating milestones, or giving to charity, it’s important to understand the implications of gifting—especially if you’re receiving or applying for Age Pension or other social security benefits. Gifting rules exist to ensure that assets or income aren’t simply given away to boost entitlements. Let’s take a closer look at how gifting can go wrong and ways to steer clear of potential pitfalls to ensure your generosity aligns with your financial goals.
Centrelink gifting rules: The basics
Centrelink allows some gifting, but limits apply:
- Annual Gifting Limit: You can gift up to $10,000 per financial year without affecting your pension or benefits.
- Five-year Limit: Over a rolling five-year period, total gifts must not exceed $30,000.
- Exceeding the Limits. If your gifts go beyond these thresholds:
- The excess is treated as a deprived asset.
- Deprived assets are included in your assessable assets for five years.
- Centrelink deems income from the excess, which may reduce your entitlements.
When gifting goes wrong
Here’s how generosity can haunt you if it’s not planned wisely:
1. Gifting your home in exchange for a right to live
Transferring the title of your home to a family member or buying property in their name without receiving adequate consideration may lead to Centrelink classifying your home as a deprived asset. However, a genuine granny flat interest can reduce the impact of deprived assets if you transfer the title in exchange for a lifetime right to live there.
Generally, the value of a granny flat interest equals the amount paid or assets transferred. There is no deprivation amount in such cases. For example, if you transfer your home or pay for the construction of a property in another person’s name in exchange for a life interest, the granny flat interest is typically valued at the amount paid.
However, Centrelink may apply the ‘reasonable test’ in certain situations. This test calculates the reasonable value of the granny flat interest by multiplying the combined annual partnered pension rate by a conversion factor based on the person’s age next birthday. The test applies when:
- Additional assets are transferred along with the title to a home, construction costs or property purchase. If the amount transferred exceeds the reasonable value, the excess will be treated as a gift.
- The granny flat rules are being used to gain a social security advantage.
It is recommended to seek both financial and legal advice before establishing a granny flat interest. By documenting agreements carefully and understanding the granny flat rules, families can avoid upsetting surprises and ensure compliance with Centrelink requirements.
What happened to Marion?
Marion, who will be 71 next birthday, sold her home and gave her son $700,000 to buy a property in his name, plus an additional $100,000 in exchange for a life interest. The conversion factor for those aged 71 next birthday is 16.56. With an annual partnered pension rate of $44,855, the reasonable value of the granny flat interest is $742,798. The excess amount of $57,202, will be treated as a gift, and result in a reduction of $171 per fortnight of Age Pension under the asset test for Marion across the next five years.
2. Giving money for others’ use
Hosting a shared family holiday and covering costs may be fine, as Centrelink considers this fair value for your spending. However, gifting cash to children or grandchildren for an overseas trip or other expenses could trigger deprivation rules.
3. Farm or business transfers
Passing on a farm or business may happen in many families, but this can have unintended consequences if the value exceeds gifting limits, and no adequate financial return is received. In some cases, Centrelink’s foregone wages policy – where unpaid work is recognised as financial consideration – can offset the impact, and working this out requires careful consideration of how the policy applies to your situation.
4. Selling assets below market value
Selling your home or other assets to family for less than market value—or gifting the proceeds outright—can lead to the excess value being classified as a deprived asset.
5. Forgiving or paying off loans
Forgiving loans or paying off a family member’s debt may seem generous, but it could be considered gifting. A forgiven loan balance or payment exceeding gifting thresholds will still count as a deprived asset for five years.
6. Large charitable donations
Making large donations in the spirit of giving is noble but can have financial consequences. Donations above allowable limits are also classified as deprived assets.
7. Transferring funds to trusts or companies
If you transfer money or assets into a trust or company without receiving adequate consideration in return, Centrelink may treat this as gifting. This means the funds are once again counted as deprived assets, with consequences for your Age Pension eligibility.
8. Gifting inheritances
If you inherit money and transfer it to someone else, this counts as a gift. However, if the money was intended for them and you’re simply acting as the estate executor, it’s not classified as a gift.
9. Special exceptions
Some transfers are exempt from deprivation rules. For example:
- You can transfer up to $500,000 into a Special Disability Trust without being penalised.
- A younger spouse contribution—moving funds to a younger partner’s superannuation account—can increase your pension entitlements until they reach Age Pension age.
Geoff gets it wrong
Consider this example: Geoff, an Age Pension recipient, decides to help his daughter by paying off her $40,000 mortgage. He also gives his grandson $15,000 to help with university fees.
Geoff’s intentions are admirable, but he exceeds the annual $10,000 limit and the five-year $30,000 cap. The excess $25,000 ($55,000 total gifts – $30,000 allowable) is classified as a deprived asset.
For the next five years, Centrelink deems Geoff to be earning income on the $25,000, reducing his pension payments. With a better understanding of the rules, Geoff could have spread his gifts over several years or structured them differently to avoid the deprivation impact.
Tips for gifting with intention
To ensure your generosity doesn’t harm your financial future:
- Stay within the $10,000 annual and $30,000 five-year limits.
- Plan large gifts strategically—consider spreading them over multiple years.
- Consult a financial adviser for complex situations like farm transfers, super contributions, or business handovers. Also consider taking legal advice.
- Use Centrelink exemptions, such as Special Disability Trust contributions, where applicable.
Gifting wisely
The holiday season is a time for generosity, but it’s important to balance the joy of giving with your long-term financial security. By understanding Centrelink’s gifting rules, you can ensure your generosity is intentional, thoughtful, and sustainable.
After all, the best gifts are those that bring joy without the ghosts of financial regret lingering in the new year. Gift wisely, and enjoy the festive season with peace of mind.
If you’re unsure about how your holiday giving might affect your financial situation or Centrelink entitlements, consulting with a financial adviser can provide peace of mind. Our fully qualified Retirement Essentials advisers can help you plan your gifts in a way that aligns with your long-term goals while maintaining your financial security.
What about you? Have you considered how your gifting might impact your retirement plans or government entitlements this season? A strategy consultation can help you navigate the holiday season with confidence.
