Will Centrelink Recognise Your Generosity?
Did you know that approximately 60% of Australians aged 67 and over receive the Age Pension? However, not everyone qualifies for the full amount. This is because Centrelink assesses your wealth based on your income and assets, and if either exceeds certain limits, your pension is reduced.
While gifting assets can decrease your wealth, potentially increasing your pension, it’s essential to understand Centrelink’s deprivation rules, which are designed to prevent people from manipulating their pension entitlements through excessive gifting.
Using Gifting to Increase Your Pension
Gifting assets can reduce your assessable income and assets, potentially increasing your Age Pension if you’re receiving a part pension
rather than the full amount.
Centrelink calculates your pension based on whichever test – the income test or the assets test – results
in the lower payment. For instance, if your assets are too high, reducing them by $10,000 (via gifting) could increase your annual pension
by $780 or $30 per fortnight.
Centrelink’s Gifting Limits
Centrelink imposes limits on how much you can give away without affecting your pension. While you’re free to gift as much as you like, Centrelink won’t increase your pension indefinitely just because your assessable assets decrease.
The rules allow:
If you exceed these limits, the excess amount will be classified as a deprived asset. This means Centrelink will treat the excess as if it’s still part of your assets for five years when calculating your pension. After this period, the deprived asset is no longer considered.
For example, if you gift $10,000 every year, by the fourth year, you’ll exceed the five-year limit of $30,000. Any excess will then count as a deprived asset for the next five years.
What Counts as a Gift Under Centrelink’s Rules?
A gift is defined as giving away something of value without receiving adequate compensation in return. Common examples include:
1. Helping children buy their first home
If you assist a child with purchasing property, and there’s no formal loan agreement, Centrelink will treat this support as a gift.
2. Gifting to grandchildren
While it’s wonderful to give gifts to your grandchildren, even smaller items can technically count as gifts, though it would take significant spending to impact your pension.
3. Charitable donations
Donations to charity are considered gifts, regardless of your intentions.
4. Selling assets below market value
Selling a car or other assets for less than their market value, such as selling a vehicle to a grandchild at a heavily discounted price, will also be considered a gift by Centrelink.
Be Generous, but Plan Wisely
Before making any substantial gifts, it’s crucial to understand Centrelink’s gifting limits and the potential impact on your pension entitlements. Seeking advice from a qualified financial adviser can help ensure your generosity doesn’t unintentionally reduce your benefits and, in some cases, may even maximise your pension.
