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It’s that time of year when people start thinking about gifting. We are not talking about socks, perfume or movie tickets, we’re talking about gifting a significant amount of money or assets – enough it would impact your pension or aged care costs. Before you gift, here’s what you should consider.
If you receive a means-tested pension such as the age pension, or you (or your partner) are receiving aged care then if you make (or receive) a gift you will need to disclose it to Services Australia. Whether you are a single or a couple, the allowable gifting amount is $10,000 in a financial year and $30,000 in five financial years.
Early inheritances are well and good, but make sure you don’t regret gifting away money you might have actually needed.Credit: Simon Letch
Gifts above the allowed amounts are considered a “deprived asset” which are counted as assets and deemed to earn income for pension and aged care, just like they are in your investments, for five years. After that time, they stop being assessed.
Gifts can be obvious – giving cash is typical – but it can also be a gift if you transfer an asset for less than market value. This can happen when cars and properties are transferred for less than they are worth. Under these circumstances, the difference between the market value and the amount paid is a gift.
Let’s say Shirley owns her home, she has $10,000 of personal assets, $600,000 of investments which earn $30,000 a year, and she receives $6666 a year of pension. Shirley decides to gift $500,000 from her investments to her children and grandchildren.
Assuming she has not gifted before, she can gift $10,000. The other $490,000 will be considered a deprived asset, included in her assets and deemed to earn income for the next five years.
While the intention of gifting is often to help family members, you need to make sure that you don’t rob Peter to pay Paul.
Shirley has reduced her assets by $10,000 and her income by $225 per year, which would see her pension increase by $780 a year. In five years the $490,000 will no longer be assessed and Shirley will be assessed on the $100,000 of investments she has left. At that time Shirley would receive around $30,000 a year in pension.
Many people wrongly believe that gifting causes you to lose pension. In reality, gifting normally delays a pension increase. The exception is when you gift an asset that was exempt from means testing such as the family home, gifting it turns it into an assessable asset that is deemed to earn income.