Gifting Rules for Age Pension Purposes

How Gifting Affects Your Pension

If you give away money or assets (gifting), Centrelink may treat those assets as still belonging to you for the purposes of the Age Pension means test. This is known as the deprivation rule. If the total value of gifts you make in a financial year exceeds the allowable limit, the excess is counted as a deprived asset and continues to affect your pension for up to five years.

The Gifting Limits

Under current rules, you can gift up to $10,000 per financial year (maximum $30,000 over a rolling five-year period) without affecting your Age Pension. Gifts within these limits are ignored by Centrelink. If you exceed these limits, the excess is counted as an asset you still own and is also deemed to earn income for the income test. The five-year lookback period means that gifts made in the previous five years can still affect your pension.

What Counts as a Gift

A gift includes giving money or assets to another person, selling an asset for less than its market value, waiving a debt, or transferring property at a discounted price. Centrelink looks at the difference between the market value and what you received. If you sell your house to your child for $200,000 when it is worth $500,000, the $300,000 difference is treated as a gift.

Strategic Gifting Considerations

Some pensioners deliberately reduce their assets to qualify for a higher Age Pension. However, this must be done carefully within the gifting limits. Annual gifting of $10,000 per year can be a useful estate planning tool to pass wealth to children while preserving pension entitlements. Larger gifts, such as helping a child buy a home, require careful timing and professional advice to minimise the impact on your pension.

What to Check in Your Advice Document

If your financial adviser has recommended gifting as part of your retirement or estate planning strategy, your SOA, ROA, or CAR should clearly explain the gifting limits, the impact on your Age Pension, and the alternatives considered. The document should also address the interaction between gifting and other Centrelink rules such as deeming and the assets test.

Understanding the Gifting Rules

Centrelink's gifting rules are designed to prevent people from giving away assets to qualify for Age Pension or a higher rate. The rules distinguish between allowable gifts (which do not affect your pension) and deprivation (which is treated as if you still own the asset). Understanding this distinction is critical for pension planning.

You can gift up to $10,000 per financial year to family members, friends, or charities without affecting your pension. However, there is also a 5-year rolling limit of $30,000. This means if you gift $10,000 each year for three years ($30,000 total), you reach the 5-year cap and cannot gift any more without it being treated as deprivation. If you then gift another $5,000 in year four, the $5,000 excess over the cap is treated as a deprived asset for 5 years.

Deprivation Rules Explained

If you gift more than the allowable limits, the excess is treated as deprivation. This means Centrelink continues to count the gifted amount as your asset (and may attribute income under deeming rules) for 5 years from the date of the gift. After 5 years, the gift is no longer considered as part of your assets.

Deprivation also applies to non-gift transactions where you transfer assets for less than their market value. This includes selling a house to a family member at a discount, transferring shares below market value, or setting up a trust for the benefit of family members while retaining some control. Even if the transaction is structured as a sale, if the proceeds are less than market value, the difference may be treated as deprivation.

Strategic Gifting and Estate Planning

Gifting can be part of a broader estate planning strategy, but it must be done carefully to avoid unintended pension consequences. If you plan to gift assets to children or grandchildren, stagger the gifts within the annual and 5-year limits to maximise what can be transferred without penalty. Gifting $10,000 per financial year to each child (if you have more than one child) counts as separate gifts, but the total across all recipients counts toward your cap.

For couples, each member of the couple has their own gifting limits. This means a couple can gift up to $20,000 per year ($10,000 each) and up to $60,000 over 5 years ($30,000 each) without affecting their Age Pension. This can be an effective way to gradually reduce assessable assets while benefiting family members.

Frequently Asked Questions

Can I gift my house to my children and still get the Age Pension?
If you gift your house (which was your principal home) to your children, the home ceases to be an exempt asset. The gifted amount is assessed as deprivation and counted as an asset for 5 years. You may also become a non-homeowner for Age Pension purposes, which changes the assets test thresholds significantly. This is almost never beneficial.

What happens if I gift money to a trust for my grandchildren?
Gifts to a trust are treated similarly to direct gifts. The amount gifted is subject to the $10,000/$30,000 limits, and any excess is deprivation. However, if you retain any control over the trust or benefit from it, the trust assets may be attributable to you under Centrelink's attribution rules regardless of the gifting limits.

Does paying for a grandchild's school fees count as a gift?
School fees paid directly to an educational institution for a dependent child are generally not treated as gifts. However, if you give money to a parent to pay school fees, that is a gift and counts toward your gifting limits. Paying the school directly is the safer approach.

Can I repay someone else's mortgage as a gift?
Yes, repaying someone else's mortgage is the same as gifting them the money. The amount counts toward your gifting limits. If the amount exceeds $10,000 per year (or $30,000 over 5 years), the excess is deprivation. Consider spreading the mortgage repayment assistance over multiple financial years to stay within the limits.