What is the Effect of Giving on Your Age Pension?

Kevin Cuthbert, an authorized representative for Financial Advice Matters, discusses some of the most common queries about gift-giving.

We all like getting a present unexpectedly! However, we must be cautious that the giver may be financially harmed. Even with good intentions, we might miss out on something wonderful.

It’s only natural to want to assist our neighbouring communities and families as much as possible. It is gratifying to do so, yet it’s crucial to realize, especially if someone is approaching or has reached retirement age, that such assistance may have a detrimental impact on benefits. We can also be approached directly by family members for support. Let’s look at some of the fundamentals:

What exactly is giving?

Consider these as examples:

  • Providing assistance to our children in obtaining a livelihood right now
  • Supporting a youngster’s education
  • Making a regular contribution to a worthy cause
  • Passing on a portion of an inheritance you received
  • Forgiving a loan
  • Minding the grandchildren
  • Meals on Wheels
  • school tuckshop
  • Volunteering at St. Vincent de Paul’s or the Salvation Army

The majority of the time, assistance comes in the form of financial assistance, and we are not hesitant to provide it when necessary, particularly if the family is involved.

Who exactly is impacted?

We don’t think about how our behaviour may have an impact on our lives.

  • If you’re a self-funded retiree with a large net worth, you’ve come to the right place.
  • If you’re a self-funded retiree and want to become eligible for a part-pension, keep in mind that reducing your assets is required.
  • If you’re presently receiving a part or full pension, you need to be aware of what you can and can’t do to avoid jeopardizing your payment.

The current criteria apply whether you’re a couple or a single person. They apply from the moment you submit your application for the age pension, but they also apply 5 years prior to that.

The next question is, “Have you made any gifts in the previous 5 years?”

How does it impact me?

The Australian government’s Centrelink agency maintains that a gift is any money or property you give away for which you do not get enough financial compensation. When you sell an asset, building, or income for less than market value, it is referred to as gifting. It might also be known as liquidation.

These activities are not finance-based, have no influence, and are not listed above:

  • Minding the grandchildren
  • Meals on Wheels
  • school tuckshop
  • Volunteering at St. Vincent de Paul’s or the Salvation Army

The following, on the other hand, are finance-related and do have an influence:

  • Assisting our youngsters in meeting their basic living expenses in today’s economy
  • Sponsoring a child’s education
  • Making a monthly contribution to a worthy cause
  • Passing on a portion of your inheritance to someone else
  • Forgiving a loan

The term “allowable disposable amount” is used by the government. The Allowable Disposal Amount is the largest amount you can offer without your benefits being affected. Giving amounts that are greater than what is allowed is considered deprivation, which may affect your benefits.

What are the rules?

The rules are:

  • The maximum amount you can give in any given year is $10,000.
  • However, you cannot give more than $30,000 in total over a five-year period.
  • If you go over these guidelines, the following will apply:
  • The excess amount will be taken into account in your asset test.
  • Deeming will be used, and it will be part of the income test.