Nick Bruining: Busting myths on gifting money and assets. Here’s how the rules affect Centrelink pensions

In this age of digital surveillance, it should come as no surprise that many seniors have a similar, common misunderstanding about what they can and can’t do with their own money.

“I’m not allowed to give anything to my kids or grandkids because, if I do, I’ll get into trouble.”

And that’s just rubbish.

You can give what you want, when you want, to whoever you want.

In spite of what you might think, it’s still your money and the government, your partner, your kids, grandkids and even the pesky so-called “expert” in the unit next door, does not have the power or knowledge to tell you how to spend your money or how it should be used.

If you want to help someone out, you just need to know the rules. There are a couple of ways you can do it.

The easiest and least complicated way to give something to your loved ones is by bank transfer, cash or — if your bank still has them — a personal or bank cheque.

There’s nothing to stop you giving other assets away but, unlike the easy cash option, this type of gift will probably require you to use an accountant. We’re talking things like a gift of real estate, shares in a company or any other type of fixed asset.

It could also mean you will be up for tax.

Other than your family home, any asset acquired after September 20, 1985, that has increased in value will almost certainly trigger capital gains tax, based on the increased value on the date you dispose of it.

The tax will be calculated on the profit based on the market value of the gifted asset, less the price you paid for it.

Assuming you held the asset for more than 12 months, only half of that profit becomes taxable, and that profit is added to your other income earned in the financial year you give it away.

You pay tax on that grand total of income, based on the normal personal tax rates. There is no “special capital gains tax” rate.

In the case of shares or other readily traded assets where the price can be easily verified, the value will be the market value of the shares based on the day of the gift.

In the case of real estate or other fixed assets, the value needs to be determined by an independent valuer. This is also required for stamp duty, which will need to be paid by the gift recipient when a fixed asset is transferred.

Even if you sell the asset to your loved one at a hefty discount, the market value will be the basis of all the tax and stamp duty calculations.

The so-called “gifting rules” only apply to Centrelink and Department of Veterans Affairs customers who are on a pension or other fortnightly income payment. If you’re receiving a full pension, you probably won’t be affected by any gifts you make.

There may be an exception to this if it’s your house, in which case other rules can sometimes apply if you are setting up new living arrangements with your loved ones.

In a nutshell, the gifting rules say you can’t deprive yourself of assets or income in order to get more money from the public purse via Centrelink or the DVA.

The rules say that you can legitimately reduce your assets by $10,000 a year, with a maximum of $30,000 over a rolling five-year period. If you give more away than $10,000 or $30,000, the remaining amount stays on the Centrelink system as though you still have it, for five years to the day.

After the five years have passed, it drops off the system and will no longer affect your payments.

In effect, under the gifting rules, and only if they apply to you, you don’t lose any pension — you just don’t get any more pension. You have, however, lost the use of the assets gifted.

You may actually get an increase in your part-pension if that’s what you are receiving. The increase would be the result of the $10,000 reduction in assessable financial assets.

So, forget what you have been told or think. It is your money to do what you want with and you can give it to whoever you like. Call us if you want our bank details.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association