Ned and Nancy are recently retired and have made a tidy profit from downsizing the family home. Ned and Nancy know that their family home is exempt from means testing for the age pension. They also know that hanging on to this windfall will be counted in their total assets and reduce the amount of age pension they receive.
Ned and Nancy decided that the best way forward to maximise their pension is to help their adult children enter the property market with a substantial monetary gift from the profits of the sale of their house.
Sounds like a great plan, right?
Unfortunately, Ned and Nancy aren’t across the rules and regulations around gifting financial assets in retirement. If they aren’t careful, their generous gift might result in losing part of their aged pension.
Ned and Nancy did not see that plot twist coming!
Understanding the Rules for Gifting in Australia
It’s not unusual for people to come into some money around retirement age. Profits from downsizing, superannuation payouts, and other retirement savings are all channels from which a bit of extra money in retirement might flow. But before you start playing Father Christmas and sharing your wealth, it’s important to understand how much you can give and over what time period, to ensure that your gifting doesn’t end in a financial disadvantage for you. Maximising your pension by lowering your assets is possible, provided you stay within the rules for gifting in Australia.
Kerri Mendl, an expert advisor on retirement finance from Alteris Financial Group, is joining us today to clear up the rules around retirement gifting in Australia.
“It’s your money, so you can choose what you want to do with it but be aware there’s an impact for Centrelink and aged care. If assessable assets are over the asset test cut-off, then the age pension will cease.”
How Much Can I Give?
“In simple terms, as a single person or a couple, you can give away up to $10,000 per financial year or up to $30,000 over a five-financial-year period without effecting your age pension,” explains Kerri. “Any amount over these totals is considered a deprived asset for five years from the date of the gift. This means the asset will continue to be assessed for you as though you still owned it for the next 5 years for the assets tests as well as the income test.”
For Ned and Nancy, giving their children a large lump sum from the profits of the sale of their family home would breach these rules. Their gift would be considered an asset for a period of five years and potentially reduce their age pension. There are also implications for Age Care costs if permanent residential care is required within 5 years.
Do these rules only apply to monetary gifts?
“The rules for gifting in Australia apply not just for cash but any asset you give away without receiving equal payment in return. This means that shares, trust funds, real estate, and vehicles including boats and caravans all fall under the rules for gifting.” Transferring part ownership of your property or selling at below market value or giving your old car away are common examples.
Can I give away a $30,000 lump sum in one financial year and nothing for the next four financial years? Is that within the rules?
The $10,000 gifting cap and the $30,000 gifting cap are applied simultaneously, so such a lump sum would impact your age pension.
Kerri Mendl explains:
“Only the first $10,000 is exempted; the extra $20,000 will be assessed for 5 years as a financial asset. However, you could give $10,000 now, then wait until July and give another $10,000, and this will be exempted.
I’m not quite ready to receive the age pension. That means the gifting caps don’t apply to me, right?
You could be forgiven for thinking so, but unfortunately, the rules for gifting in Australia are applied to those who are likely to apply for the age pension in the near future.
Here’s Kerri again to clarify:
“The age pension application has a question asking if over the past 5 years cash, assets, property or income has been given away.”
Maximising my pension is my goal. What’s the best way to reduce my assets AND stay under the gifting caps?
Managing your extra money in retirement without falling foul of rules and regulations can be complex and will depend on the amount and types of assets you have and what you plan to do with them. Given that everybody’s individual situation is different, it’s best to discuss your financial goals with a qualified professional.
With some guidance and forward planning from retirement finance specialists such as Alteris Financial Group, you can achieve your goal of maximising your pension and making your assets work for you.
Kerri Mendl is an expert Lifestyle and Care Financial Adviser from Alteris Financial Group. For more information, visit https://alteris.com.au/