Whether it is to reduce Aged Care Fees, or to increase Centrelink/DVA Pension payments, inevitably gifting will be considered. With a real lack of other asset minimisation strategies available now (since rule changes in the last decade relating to private companies, family trusts and annuities), gifting is one of a few that is occasionally considered (along with funeral bonds – perhaps a story for another day!).
“I am only allowed to give away $10,000 per year” is a statement I hear regularly. It alludes to the Centrelink rule that exempts the first $10,000 per financial year gifted from the Assets Test (for both pension and Aged Care Fee purposes). The other limit that is placed on this is “Up to a maximum of $30,000 in a 5 year period”. Centrelink websites and various others explain the ins and outs of the gifting rules, so I’m not going to restate them here.
It is important to understand that you can give away however much you like. Your assets, built up over significant time, are yours to choose what you do with them. Often misinterpretation of the Centrelink rules result in people believing that they are “only allowed to give away $10,000 per year”. This is not the case! You can give away as much as you like….
BUT, you need to carefully consider the implications. Gifting is unlikely to significantly improve your Centrelink/DVA and Aged Care Fee situation. In some cases, it can make it worse. Gifts above the $10,000 limit are assessed by Centrelink/DVA as if you still hold those assets for 5 years. As an example, a gift of $100,000 to a family member in one lump sum will result in $90,000 continuing to be assessed as an asset for 5 years. Furthermore, the assessed gift amount (in the example, $90,000) is deemed to earn interest at the current applicable deeming rates.
Keeping all of this in mind, there are a few important points to consider:
The $10,000 gifting rule is only applicable where Centrelink, DVA or Aged Care Fees are involved. There is no such thing as a “Gift Tax” anymore, meaning that if a person does not have any reliance on Centrelink/DVA, then there is no limit to gifting. However, if gifting, please consider the impact on the recipient. If they rely on Centrelink payments, or have children who receive Austudy/Youth Allowance, there can be unintended consequences.
Gifting non-income producing assets can worsen your financial position. The beach house/shack, or vacant block of land, may already have it’s value being assessed by Centrelink/DVA for pension payments. However, if no income is derived from this asset, then Centrelink/DVA will be assessing no income. Remember that assessed gifts (above $10,000) are deemed to earn income, which may reduce pensions and/or increase Aged Care Fees! Transfering the title of your home can have a similar impact.
Gifting may seem good in theory, but often even smaller gifts of $10,000 may only improve your income from Centrelink/DVA by a few hundred dollars per year, or reduce your Aged Care Fees by a few hundred dollars per year. Given overall cashflow is of paramount importance, is it really worth it? I certainly understand however, that there are non-financial benefits to making gifts.
There are special rules if a person making a gift received a right to reside in the recipient’s house in return for the gift.
It is important to get advice if you are considering gifting as part of a Centrelink or DVA maximisation/Aged Care Fee minimisation strategy. Gifting can make sense in some situations, but it is important to understand all of the consequences.