Tuesday, January 4, 2011

Gifting

Our first blog entry will be comments on an often mistreated gifting rule. Often pensioners will accidently misrepresent the purpose of the money, and be adversely treated by Centrelink. While the pensioner may use the term ‘gift’ to Centrelink, depending on the use of the money it may be ‘ignored’ by Centrelink.

Centrelink will only allow a gift of $10k per year, or $30k over 5 years. Hence if a pensioner gifts $100k, the reduction in assessed asset base will be as follows:
Year 0 $100k
Year 1 $90k
Year 2 $80k
Year 3 $70k
Year 4 $70k
Year 5 $70k
Year 6 $0
Noting that independent of the value of the gift after 5 years the gift value will be ignored by Centrelink.

Centrelink say…
"Gifts may be assessed for 5 years from the date of transfer and deemed income will apply".
"Gifting does not include you selling or reducing your assets to meet normal expenses, for example, to buy consumer goods like a fridge or washing machine, for home maintenance/improvements, or to pay for holidays. Nor does it include payments for services received, e.g. lawn mowing".

So pensioners need to be very clear on what, or how, the gift was made.

One of our clients gave their children $300,000 to help them buy a house so that they all could live in the same house and be ‘looked after’. Centrelink treated this as a gift – as our client used the word gift –and Centrelink only reduced their assessed assets by $10,000. This meant that $290,000 continued to be assessed as earning interest in the bank – deemed income- and their part pension was not altered significantly, even though they had less income and assets.

We organised for the full $300,000 to be treated, not as a gift, but as a life interest housing option – a granny flat. Their assets were reduced by the full $300,000 and they gained the full pension.

Equally a pensioner could provide their children board/food money in advance and this may necessarily not be treated as a gift.

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