Self-Funded Retirees Gifting Money: 3 Important Implications

Self-Funded Retirees Gifting Money

Why does it seem like there are rules around the amount of money self-funded retirees are able to gift? After all, it’s your money, shouldn’t you have full control over it?

Yet, for some reason, there’s a persistent thought in the back of your mind urging you to look into gifting rules before giving money to a family member.

In this article I’ll go over everything regarding self-funded retirees gifting money, including rules and implications.

I’ll also answer a common question; how much money can you gift without it affecting your pension?

Can Self-Funded Retirees Gift Money?

Yes, a self-funded retiree can gift money to a family member or friend. There is no rule or law prohibiting you from giving money (or property) to a loved one.

However, there are some important implications you need to be mindful of before doing so, including ownership and taxation issues, as well as how gifting to family can affect your pension.

How Much Can a Self-Funded Retiree Gift?

A self-funded retiree can gift as much as they like. Legally, there is no restriction in Australia on the amount that can be given to a family member as a gift.

There are, however, limits on the amount that can be gifted before it potentially affects Age Pension payments.

3 Implications for Self-Funded Retirees Gifting Money

When it comes to gifting money to children, family members, and loved ones there are 3 important implications to keep in mind.

These include Centrelink, taxation and ownership issues. Let’s take a look at each.

1. Ownership Issues of Gifting

By gifting money or assets to another person, you are transferring the legal ownership of that money to another person. This means you have no further control of how that money is used or allocated and have no rights to access that money. So, even if the person you are gifting to says that it is still yours, or that they will pay your bills from it, or they will pay it back to you at a later date, there is no legal requirement for them to do so once you have gifted it to them. It is now theirs.

Changing the ownership of this money from yourself to the person you have gifted it to could also have estate planning implications. As this money is no longer yours, it will not form part of your estate when you pass away. This is particularly important to consider if you have multiple children, for example, and provide a gift to only one of them, because the other children will effectively miss out on an inheritance. If this is of concern, you should seek advice from a specialist estate planning solicitor.

The only way the transfer of money to another person can remain somewhat yours is if it is treated as a loan, rather than a gift. If it is a loan, then the capital loan amount remains yours and any interest earned on the loan will be assessed for tax purposes. Furthermore, the loan amount and interest will be assessed for Centrelink Income and Assets purposes.

2. Taxation Issues of Gifting

When you gift money or an asset to a child, family member or other person, any future income (interest, rent, dividends, etc.) derived from the amount gifted, plus any future capital gains, will be taxed at the recipient’s marginal tax rate.

You will need to be mindful of this, particularly if it is a large amount and you, as a pensioner or self-funded retiree, for example, were not paying any tax, but have now gifted this amount to someone who has a high marginal tax rate.

Related Article: Do Self-Funded Retirees Pay Tax in Australia?

3. Centrelink Issues of Gifting

It would be amiss of a pensioner or self-funded retiree to not consider how gifting could reduce assessable income and assets for Centrelink purposes. But what are the rules and how much can you give to your children without affecting your pension?

As mentioned earlier, you can gift as much as you like to another person. However any amount that you gift above $10,000 in any one financial year and $30,000 over five financial years, will continue to be assessed for Centrelink purposes for five financial years.That is, Centrelink will assume you continue to own these surplus amounts when assessing your Age Pension payments.

Here are some examples:

Example 1

Let’s assume you gifted $200,000 to a child as a one-off lump sum gift on the 15th September 2023. Of this $200,000, $10,000 would be within the allowable thresholds and not continue to be assessed by Centrelink, but the remaining $190,000 would for 5 years, as shown below:

DateGift AmountAllowable Gift-Free AmountGifting in Previous 5 YearsAmount Continued to be Assessed as Financial Asset
15 September 2023$200,000$10,000$0$190,000 (until 14 September 2028)

Example 2

What about multiple gifts? How would they be assessed? The table below shows how multiple gifts over several financial years would affect your pension.

DateGift AmountAnnual Gift-Free Amount RemainingGifting in 5 Year PeriodAmount Continued to be Assessed as Financial Asset
15 September 2023$7,000$10,000$8,000$0
1 March 2024$9,000$3,000$16,000$6,000 until 28 Feb 2029 ($7,000 + $9,000 - $10,000)
1 July 2024$5,000$10,000$21,000$0
1 August 2025$14,000$10,000$31,000$5,000 until 31 Jan 2030 ($14,000 - $10,000) + ($31,000 - $30,000)

In this example, smaller gifts are provided over multiple dates – a total of $16,000 in the 2023/24 financial year, $5,000 in the 2024/25 financial year and $14,000 in the 2025/26 financial year; result in excess gifting during the 2023/24 year of $6,000. There is two instances of excess gifting totalling $5,000 in the 2025/26 year, due to the annual cap being exceeded by $4,000 and the 5 year cap being exceeded by $1,000.

Related Article: Is Superannuation Counted as an Asset for the Pension?

How is Excess Gifting Assessed by Centrelink?

If you exceed the Centrelink allowable gifting limits, the excess amount will continue to be assessed by Centrelink for a further five-years under both the Income Test and the Assets Test. After the five-year period, the amount will no longer be assessed.

Taking Example 1, above, $190,000 would continue to be counted as an asset under the Assets Test; plus, the deeming rates would apply against it under the Income Test, even though you no longer own or have access to these funds. This would continue until 14 September 2028.

Related Article: How Much Can a Pensioner Earn Before it Affects the Pension?

Should a Self-Funded Retiree Gift Money?

The question of whether you should gift money or not depends on a number of deciding factors that only you, yourself can determine.

You might see joy in being able to give money to your children or loved ones while you are still alive, so that you can see the benefits of your gifts to them, regardless of the implications discussed above.

You may have the sole objective of maximising Age Pension payments, in which case you are willing to take on the other risks and implications of gifting, as detailed above. If this is the case, then you should get your head around the gifting rules and optimise them for your specific situation.

This video explains how you can potentially rearrange your assets with a spouse to maximise Age Pension payments.

Our financial planning firm, Toro Wealth, specialises solely in helping 50 to 70 year-olds optimise their financial position in the lead up to retirement. If you’re interested in learning more about our service and cost, click here.

Frequently Asked Questions

Here are some frequently asked questions in relation to self-funded retirees gifting money.

How Much Money Can a Self-Funded Retiree Give Away?

A self-funded retiree can give away as much money as they like. In Australia, there is no rule or restriction around how much you can gift to another person, but there are Centrelink, taxation, estate and ownership consequences of doing so, as detailed above.

How Much Money Can Be Legally Given to a Family Member as a Gift in Australia?

The amount of money that can be legally given to a family member as a gift in Australia is unrestricted. There is no limit on the amount of money you can give away. But, you need to be mindful of the consequences a gift to a family member can have. Refer to the information above for further information.

How Much Can a Pensioner Give as a Gift?

A pension can give as much as they like as a gift. However, any amount given as a gift above $10,000 in a single financial year and a total of $30,000 over five consecutive financial years, will continue to be assessed under the Centrelink Income Test and Assets Test for five years from the day these respective limits are exceeded.

How Much Can I Gift My Children Without Affecting My Pension?

You can gift up to $10,000 in any one financial year up to a total of $30,000 over five financial years without affecting your pension. In saying that, gifting more than these amounts doesn’t exactly affect your pension, your pension assessment just assumes that you still own the excess funds for a further 5 years after gifting, even though you no longer own them.

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Thanks for stopping by - Chris