Understanding Centrelink Gifting Rules

Friday, March 01, 2019
Understanding Centrelink Gifting Rules

Written by Hudson Adviser Ivan Fletcher

The Intention - of the Gifting rules is to limit the increase in social security entitlements that can be achieved by gifting large or regular amounts on an ongoing basis.

Understanding the Terminology - What is a Deprived Asset?

When a person disposes, diminishes or destroys the value of assets or income without receiving adequate financial consideration it is considered to be a Deprived Asset and is therefore still included by Centrelink assessment purposes, subject to the Gifting Rules.

Gifting Rules

Under social security legislation, disposals of assets are assessed against two tests/rules to determine whether deprivation has occurred:

  • Rule 1   -  $10,000 per financial year, 
  • Rule 2   -  $30,000 over a rolling five financial year period

The same thresholds apply to both singles and members of a couple (combined).

Where Gifting exceeds either of the above tests, deprivation rules will apply such that the excess amount continues to be assessed by Centrelink under the Assets test AND also deemed under the Income test for a period of five years from the date of disposal.  

The two gifting rules operate concurrently which can cause some confusion.

How To Apply The Rules

Each time a gift is made,

  1. it is first measured against the $10,000 per financial year rule,
  2. then the $30,000 over a rolling five financial year rule is applied.                          

It’s important to note that where multiple gifts are made in a financial year, the rules are applied at the date of disposal of each gift to determine whether any amount is assessed as deprivation.

The 5 Year Confusion  

Deprivation is assessable for five years from the exact date of disposal.  That is, until the 5th year anniversary of the date of the gift. 

This rule is not to be confused with the five “financial years” that are used when applying the “$30,000 over a rolling five financial year” rule.

Applying the $30,000 over a rolling five financial year rule:

  1. Calculate the combined value of the current gift and any gifts earlier in current financial year and previous four financial years.    
  2. Subtract any amounts already assessed as deprivation during the 5 financial year.
  3. If the resulting amount exceeds $30,000, the lesser of the latest gift or excess amount is assessed as deprivation.

In the steps above, double counting is avoided by subtracting any amounts already assessed as deprivation.

Misconception  - A large gift (example $50,000) in the first year, does NOT prevent your from gifting in later years as the gifting rules contain provisions to prevent amounts that exceed the $10,000 per financial year from also counting against the $30,000 over a rolling five financial year rule.  This is demonstrated in the following example. 

Example  

Year 1  (2017/18)  $50,000  Gift

David and Victoria provided their first gift of $50,000 to their children in 2017/18 to help them with a deposit for their first home.

Rule 1 is first up.  As this amount exceeded $10,000 in a financial year, Centrelink is assessing $40,000 as deprivation which is assessed as an asset and deemed for income testing for five years from the date of the gift.

Rule 2 is not required (as there are no Gifts in previous years).
Although we do not need to apply the second test, it should be noted that only $10,000 will be counted towards the 5 year rule as the other $40,000 has already been classified as “Deprived” and assessable by centrelink.

Year 2 (2018/19)  $10,000  Gift 

Rule 1 is first up and this gift is within the $10,000 per financial year rule.

Rule 2 is now considered ($30,000 over 5 years) using the 3 step Process (per above).

  1. Total Gifts over 5 years (including the current year)  = $60,000
  2. Subtract any amounts that are already assessed as deprivation: = $40,000
    Calculation $60,000 - $40,000  = $20,000
  3. If this amount exceeds $30,000, the lesser of the latest gift amount or excess amount is assessed as deprivation.  The calculated amount is less than $30,000, therefore deprivation does not apply in relation to a $10,000 gift in 2018/19.

Year 3 (2019/20)  $10,000  Gift 

Rule 1 is satisfied (same as above).

Rule 2

  1. Total Gifts over 5 years (including the current year)  = $70,000
  2. Subtract any amounts that are already assessed as deprivation: = $40,000
    Calculation $70,000 - $40,000  = $30,000
  3. Again, this amount does not exceed $30,000, and therefore deprivation does not apply and the $10,000 is not assessed by centrelink.

However any additional gifts for the remainder of the five year period would be assessable as demonstrated below.

Year 4  (2020/21)    $10,000 Gift

Rule 1 -  is satisfied (same as above).

Rule 2

  1. Total Gifts over 5 years (including the current year)  = $80,000
  2. Subtract any amounts that are already assessed as deprivation: = $40,000
    Calculation $80,000 - $40,000  = $40,000
  3. If this amount exceeds $30,000, the lesser of the latest gift amount or excess amount is assessed as deprivation.  Therefore the whole $10,000 gift in 2020/21 is Centrelink assessed as a deprived asset.

How should gifts be structured to minimise deprivation?

If you are in receipt of Centrelink support payments (or about to be in the near future), how you spread your Gifting can have an impact on your current and future Centrelink payments.

As the two gifting limits are applied concurrently, when determining how to structure gifts made on an ongoing basis, it is important to make best use of both tests - $10,000 per financial year and $30,000 over a rolling five financial year period.

The optimal result is achieved by taking advantage of the $10,000 per financial year limit for the first three years, as well as gifting amounts that exceed the $10,000 limit as early as possible so that gifting ceases to be assessable at the earliest possible date.

In the example above this was achieved.

1. At least $10,000 was gifted in each of the first 3 years (maximising gifting each year).

2. The Deprived amount (still assessable by Centrelink) was all in the first year, which means that it will ceased to be assessed within 5 years of the original first gifting date.




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