There are many rumours and well-intentioned but wrong advice out here on the internet about how to maximise Centrelink or DVA pension by “gifting assets” before applying. I want to clear up some of those misunderstandings
The gifting and deprivation rules prevent you from giving away assets or income over a certain level in order to increase age pension and allowance entitlements. For Centrelink and Department of Veteran’s Affairs (DVA) purposes, gifts made in excess of certain amounts are treated as an asset and subject to the deeming provisions for a period of 5 years from disposal.
Acknowledgement: I have relied on the excellent guidance of the AMP TAPin team for the majority of the content in this article. They write great technical articles for advisors and I try and make them SMSF trustee friendly.
What is considered a gift for Centrelink purposes?
For deprivation provisions to apply, it must be shown that a person has destroyed or diminished the value of an asset, income or a source of income.
A person disposes of an asset or income when they:
? engage in a course of conduct that destroys, disposes of or diminishes the value of their assets or income, and
? do not receive adequate financial consideration in exchange for the asset or income.
Adequate financial consideration can be accepted when the amount received reasonably equates to the market value of the asset. It may be necessary to obtain an independent market valuation to support your estimated value or transferred value or Centrelink may use their own resources to do so..
Deprivation also applies where the asset gifted does not actually count under the assets test. For example, unless the ‘granny flat’ provisions apply, deprivation is assessed if a person does not receive adequate financial consideration when they:
? transfer the legal title of their principal home to another person, or
? buy a new principal home in another person’s name.
What are the gifting limits?
The gifting rules do not prevent a person from making a gift to another person. Rather, they cap the amount by which a gift will reduce a person’s assessable income and assets, thereby increasing social security entitlements.
There are two gifting limits.
- A person or a couple can dispose of assets of up to $10 000 each financial year. This $10, 000 limit applies to a single person or to the combined amounts gifted by a couple, and
- An additional disposal limit of $30 000 over a five financial years rolling period.
The $10,000 and $30,000 limits apply together. That is, although people can continue to gift assets of up to $10 000 per financial year without penalty, they need to take care not to exceed the gifting free limit of $30 000 in a rolling five-year period.
What happens if the gifting limits are exceeded?
If the gifting limits are breached, the amount in excess of the gifting limit is considered to be a deprived asset of the person and/or their spouse.
The deprived amount is then assessed as an asset for 5 anniversary years from the date of gift. It is assessed as an asset for asset test purposes and subject to deeming under the income test.
After the expiration of the 5 year period, the deprived amount is neither considered to be a person’s asset nor deemed.
Example 1: Single pensioner – gifts not impacted by deprivation rules
Sally, a single pensioner, has financial assets valued at $275,000. She has decided to gift some money to her son to improve his financial situation. Her plan for gifting is as follows:
| Financial year | 2017/18 | 2018/19 | 2019/20 | 2020/21 | 2021/22 | 2022/23 |
| Amount gifted | $6,000 | $6,000 | $6,000 | $6,000 | $6,000 | $6,000 |
With this gifting plan, Sally is not affected by either gifting rule. This is because she has kept under the $10,000 in a single year rule and also within the $30,000 per rolling five-year period.
Example 2: Single pension – Gifts impacted by both gifting rules
Peter is eligible for the Age Pension. He has given away the following amounts:
| Financial year | Amount gifted | Deprived asset assessed using the $10,000 in a financial year free area rule | Deprived asset assessed using the $30,000 five-year free area rule |
| 2017/18 | $33,000 | $23,000 | $0 |
| 2018/19 | $2,000 | $0 | $0 |
In this case, $23,000 of the $33,000 given away in 2017/18 exceeds the gifting limit (the first limit of $10,000) for that financial year, so it will continue to be treated as an asset and subject to deeming for five years.
In 2018/19, while gifts totalling $35,000 have been made, no deprived asset is assessed under the five-year rule after taking into account the deprived assets already assessed, ie $33,000 + $2,000 – $23,000 = $12,000, which is less than the relevant limit of $30,000.
Example 3: Couple impacted by both gifting rules
Ted and Alice are eligible for the Age Pension. They give away the following amounts:
| Financial year | Amount gifted | Deprived asset assessed using the $10,000 in a financial year free area rule | Deprived asset assessed using the $30,000 five-year free area rule |
| 2017/18 | $10,000 | $0 | $0 |
| 2018/19 | $13,000 | $3,000 | $0 |
| 2019/20 | $10,000 | $0 | $0 |
| 2020/21 | $10,000 | $0 | $10,000 |
| 2021/22 | Any gifts in 2014/15 will be assessed as deprived assets under the five-year rule | ||
In this case, $3,000 of the $13,000 given away in 2018/19 exceeds the gifting limit for that year, so it will continue to be treated as an asset and subject to deeming for five years. The $10,000 given away in 2020/21 exceeds the $30,000 limit for the five-year period commencing on 1 July 2017, so it will also continue to be treated as an asset and subject to deeming for five years.
Are some gifts exempt from the rules?
Certain gifts can be made without triggering the gifting provisions. Broadly speaking, these include:
? Assets transferred between the members of a couple. A common example is where a person who has reached Age Pension age withdraws money from their superannuation and contributes it to a superannuation account in the name of the spouse who has not yet reached age pension age.
? Certain gifts made by a family member or a certain close relative to a Special Disability Trust. For more information on Special Disability Trusts, refer to Department of Human Services – Special Disability Trusts.
? Assets given or construction costs paid for a ‘granny flat’ interest. See Department of Human Services – Granny Flat Interest for further detail.
Trying to be too smart – Gifting prior to claim
Contrary to what many read on the internet any amounts gifted in the five years prior to accessing the Age Pension or other allowance are subject to the gifting rules
Deprivation provisions do not apply when a person has disposed of an asset within the five years prior to accessing the Age Pension or other allowance but could not reasonably have expected to become qualified for payment. For example, a person qualifies for a social security entitlement after unexpected death of a partner or job loss.
Gifting and deceased estates
The gifting rules apply to a person’s interest in a deceased estate if the person does any of the following:
? Gives away their right to their interest in a deceased estate for no/inadequate consideration,
? Directs the executor to distribute their interest in a deceased estate for no/inadequate consideration, or
? After the estate has been finalised, gives away their interest in a deceased estate to a third-party for no/inadequate consideration.
The above rules apply even if the deceased died without a will.
Gifting and death of a partner
In some circumstances, couples in receipt of a social security benefit may give away assets prior to death of one of them. Prior to death, any deprived assets would have been assessed against the pensioner couple for five years from the date of the disposal. Now that a member of the couple has passed away, how will the deprived assets be assessed for the surviving partner?
The amount of deprivation that continues to be held against a surviving partner depends on who legally owned the assets prior to death.
Table 1: Gifting and death of a partner
| Legal owner of the deprived asset | Assessment of deprived assets |
| jointly, | does not change. |
| by the deceased partner, | is reduced to zero. |
| by the surviving partner, | increases by the amount held against the deceased partner by the outstanding balance held against the deceased partner. |
Example 4: Death of a partner
Daryl (age 84) and Gail (age 78) gifted an apartment worth $260,000 to their son Ethan on 1 July 2019. At the time the gift was made, Centrelink assessed $250,000 as a deprived asset. Daryl passed away on 1 July 2020.
The treatment of the deprived assets for Gail will depend on who legally owned the assets prior to Daryl’s death. The impact of different ownership options is shown below:
| Legal owner of the deprived asset | Assessment of deprived assets |
| jointly, | Half of the asset value of the deprived asset will be assessed against the surviving spouse. As the amount of the deprived asset is $250,000, only $125,000 will be assessed against Gail |
| by the deceased partner, | No amount will be assessed against the surviving partner. As the amount of the deprived asset is $250,000, the amount assessable to Gail is $0. |
| by the surviving partner, | The full amount will continue to be assessed against the surviving partner. As the amount of the deprived asset is $250,000, the amount assessable to Gail remains at $250,000. |