Gifting to reduce assets impacts age pension entitlements
I WAS recently asked by a couple who assisted their son and his partner with their mortgage costs by giving them $120,000 towards the deposit what impact that could have on their Age Pension entitlement.
In applying for the age pension, Centrelink applies an assets and income test to determine your entitlement to a pension benefit. Broadly speaking, whichever test delivers the lower pension benefit is the test that will apply. There are limits as to how much an age pension applicant can gift in order to reduce the amount of assets they own to increase their pension entitlement.
You are entitled to gift up to $10,000 a year or $30,000 over a five-year period. The same limits apply as a single person or as a couple.
If you exceed these limits the amount in excess of the limit is considered a deprived asset and the excess amount counts as an asset for five years from the time you made the gift.
Even though you are applying for the age pension now, as you gifted your son the $120,000 three years ago, $110,000 which exceeds the limit will count as a deprived asset and therefore count for assets test purposes and be deemed under the income test. However, in 2020, once the five years has expired from the date of gifting, it will no longer be counted.
Under the assets test, your assessable assets, which exclude the family home for example, are counted at current market value. Your age pension reduces by $3 per fortnight for each $1000 that the assessed value of your assets exceeds the threshold.
The current cut-off point to receiving a part age pension for a couple who own their home is assessable assets less than $848,000 ($564,000 for a single). For a non-home owner couple, the threshold will be $1,055,000 ($771,000 for a single).
If the $110,000 that is still being assessed (as a result of the $120,000 gift to your son) will exclude you from receiving the age pension, there are a range of options available to reduce your assessed assets:
- You could consider renovating or upgrading the family home as the family home is assets test exempt.
- You could spend money on a holiday.
- Purchase a funeral bond up to $12,500 per person or pre-pay your funeral and cemetery plot.
Alternatively, you could wait for the five years from the date of gifting to expire and then re-apply for the age pension then.
If Centrelink tells you that you have lost your age pension due to exceeding the assets test, but do qualify for the Commonwealth Seniors Health Card (CSHC), what would be your benefits?
The CSHC is a concession card that is available to individuals who are Australian resident, of pension age or who do not qualify for the age pension due to their level of income or assets.
The benefits of the CSHC include discounted prescriptions for medicines listed on the Pharmaceutical Benefits Scheme (PBS).
Once the PBS Safety net has been reached you will receive PBS prescriptions without charge for the remainder of the calendar year.
You are entitled to access to bulk-billed doctor visits if these are provided by your doctor. Additionally, access to a larger refund for medical costs when you exceed the Medicare safety net.
Unlike the age pension, the CSHC is not subject to the asset test. However, it is subject to an income test threshold. The threshold limit is adjusted taxable income (plus deeming from account-based pensions) of $87,884 a year as a couple or $54,929 a year as a single.
To apply, contact the Department of Human Services and request an application for the CSHC. If you have previously been issued a Centrelink Customer Access Number, this number remains current. Applications can be made online at www.humanservices.gov.au
This story first appeared on www.wealthpartners.net.au. Any general advice in this story doesn't take account of personal objectives, financial situation and needs.