Nick Bruining Q+A: A gift or a loan to your kids? One is far worse for retirees on a Centrelink pension

Question

We are aware of Centrelink’s gifting definitions and requirements.

We would like to help one of our sons and his family to assist them in upgrading to a larger home.

Instead of gifting them $100,000, for example, is it possible under Centrelink rules to call it a loan, in which case it might be viewed as an investment.

Answer

Your suggested strategy probably puts you in a worse position as far as Centrelink is concerned.

Under the deprivation — or gifting, rules — you can reduce your assets by a maximum of $10,000 a year with a maximum of $30,000 over a rolling five-year period. When you exceed that amount the excess gift remains in Centrelink’s systems for five years to the day as though you still have the excess amount.

In your case, a straight-out gift of $100,000 would see your assets reduced by $10,000 and the remaining $90,000 captured under the income and asset test for five years.

For income test purposes, the assessable value of the gift is added to your other financial assets and the grand total used to determine fortnightly income under the deeming system calculations.

In April 2031, however, the $90,000 drops off the system. If you structure the whole amount as a loan it is fully assessable as a financial asset and would remain so forever.

The better option at this time of year would be to give your son $90,000 now. In another three months, give him another $10,000 to lift your total gift to the $100,000 figure.

Centrelink will have $80,000 recorded in their systems — being the original $90,000 gift, less the permitted $10,000.

On July 1, however, the “amount-per-year” clock resets and the further gift of $10,000 reduces your assessable assets by $10,000.

Given that you have more than one child, you may want to make changes to your will to maintain equity among the other children.

Question

I write following your recent article on Centrelink updates.

I receive an age pension. For the past 20 years I have lived very frugally, putting any excess money into term deposits and allowing them to roll over.

These have grown in value but the interest on each one is under $2000, which I understand is the amount you need to declare.

Am I correct in believing that I don’t have to report these as a change in my circumstances?

Answer

No, you will need to notify Centrelink. The requirement is that if your overall financial circumstances as recorded by Services Australia — the parent department of Centrelink — have changed by $2000 or more you are required to notify Centrelink within 14 days.

It is not a per-transaction figure but deals with your total financial position from Centrelink’s perspective. The requirement is that Centrelink is provided with an accurate picture of your overall financial position, because that is what determines your fortnightly pension entitlement.

While each interest payment may have been less than $2000, at some point your overall financial position changed by more than $2000 relative to the current Centrelink records.

You can request a detailed breakdown of what Centrelink has recorded. But the easiest way is to update the records yourself. This can be done through the myGov website when your account is linked to Centrelink.

Under the income and assets tab, you can select the update option. Here you can see the recorded values and update them as required. The system may determine that it wants further proof and will ask you to upload copies of bank statements and other information.

If using term deposits, you will probably see the older accounts listed. Centrelink does not receive a data feed from banks that automatically updates your accounts and their balances.

You may need to delete the old accounts and then load the new accounts into their system. This will probably require copies of the new bank statements to be uploaded.

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