Nick Bruining: Centrelink rules on gifting and how they can work to get you a bigger age pension
Under Centrelink's poorly understood gifting rules, the end of the financial year marks a reset point for the annual 'gifting limits'.
Only those on an asset-tested part-pension would benefit significantly from the strategy, and only to the point where you receive the full rate of pension.
For a single, that full pension amount is currently $1149 a fortnight. For couples, it's $866.10 each, or a combined $1732.20 a fortnight.
The gifting or deprivation rules were established to prevent people from deliberately divesting themselves of assets and resources to get more from the social security system.
Under the gifting rules, an individual or couple can legitimately reduce their assets by a maximum of $10,000 each financial year, with a maximum of $30,000 over a rolling five-year period.
The date of the gift is used to determine two things.
Once the gift is made, the five-year clock begins to tick. At the end of those five years, the gift drops off the Centrelink system.
That means if you give away $100,000 today, the assets Centrelink uses to determine your entitlements would reduce by $10,000. The remaining $90,000 stays in Centrelink's systems as though you still have it for five years. The $90,000 counts under the asset test and is counted as a financial asset under the deeming system.
In essence, you don't lose any pension. You just don't get any more than the permitted amount and, of course, you've lost the use of the asset.
On June 30, 2030, however, the $90,000 drops off the system and, if you are an asset-tested pensioner, your pension jumps by up to $270 a fortnight.
The second significance of the date is that the annual $10,000 gift limit is per financial year. That means you have a few hours to gift $10,000. If you're an asset-tested pensioner, that alone would see your pension lift by $30 a fortnight for life. In effect, that's like a 7.8 per cent return on your money for life, more than you'll receive as interest in any bank account.
And because tomorrow heralds a new financial year, you can repeat the $10,000 gift and see another $30 a fortnight increase.
When notifying Centrelink, you'll need to clearly identify the dates the gifts were effected.
If you have myGov access to Centrelink services, you can do the first notification today once the gift has been made, and the second tomorrow, on July 1.
The $10,000 limit applies to singles and is the combined limit for members of a couple. It doesn't need to go to an individual and can be split up.
The easiest way is to gift money.
You can gift assets like shares and property, but this will trigger capital gains tax issues because a gift — whether or not you receive anything — is a disposal under the CGT rules. The disposal value is the market value of the asset, and in the case of real-estate or other unlisted assets, independent valuations will be required.
Nick Bruining is an independent financial adviser and a member of the
Certified Independent Financial Advisers Association
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