How do gifts affect aged care fees and the age pension?

Helping your children or grandchildren with money is one of the most natural things a parent can do.

However, Centrelink and the Department of Veterans’ Affairs (DVA) set limits on how much you can give away. Gift more than the allowed amounts, and the excess is treated as if you still own it for five years under both the assets test and the income test.

That affects your Age Pension. It also flows directly into the means assessment by Services Australia that determines your aged care fees.

Here is how the rules work.

The gifting limits: $10,000 a year, $30,000 over five years

You can gift up to $10,000 per financial year, and no more than $30,000 over a rolling five-year period, without affecting your pension or aged care fees.

These limits apply whether you are single or part of a couple. They do not double for couples. Two members of a couple cannot each give away $10,000 in the same year; the $10,000 limit is shared between them.

Anything above these thresholds becomes what Centrelink calls a “deprived asset”. The rules also reach backwards. Gifts exceeding these thresholds made in the five years before you claim the Age Pension are assessed.

What counts as a gift?

A gift is anything you transfer without receiving full market value in return. Cash is the obvious example, but the definition is much broader.

Shares, managed funds, cars, caravans, furniture and real estate all count. So does paying off someone else’s mortgage or debts. If you sell your home (or any asset) for less than it is worth, the difference is considered a gift.

Sell a $900,000 property to your son for $700,000 and, in Centrelink’s eyes, you have gifted $200,000.

Whether to keep or sell the family home when entering aged care raises its own set of questions, which we cover separately.

The five-year deprivation rule

When you gift amounts above the thresholds, the excess is assessed as a deprived asset for five years from the date of each gift.

Deprived assets count at their full value under the assets test. They are also deemed to earn income under the income test, using the same deeming rates that apply to your financial investments.

We explain how deeming rates work in a separate article.

Two things surprise people about this rule. First, the clock starts on the date of the gift, not when you claim the pension or enter aged care.

Second, once five years have passed, the deprived amount simply drops out of your assessment. There is no ongoing penalty and no requirement to recover the money.

Deprivation is not a fine. It is Services Australia assessing money you no longer have. That is precisely why it hurts. Your aged care fees are higher, but the cash that would have paid them is gone.

Forgiven loans count too

Lending money to family is treated differently from gifting it. A loan remains on your records as a financial asset and is assessed and deemed because you are still owed the money.

The trap comes when the loan is forgiven. Forgive a loan and Centrelink treats the outstanding balance as a gift made on the day of forgiveness. The gift free thresholds and the five-year deprivation rule apply from that date.

A loan forgiven through your will is different again, as the deprivation rules no longer matter when a person passes away. But while you are alive, an unpaid family loan remains an assessable asset in the means assessment.

How gifting affects aged care fees

Residential aged care fees are based on a means assessment of your assets and income. Deprived assets are included in full, along with the deemed income attributed to them. Your assessable position appears larger than your actual position, and every fee that scales with means increases accordingly.

For anyone entering residential care from 1 November 2025, the fee structure changed. The means-tested care fee only applies to residents under the grandfathering provisions.

In its place, new entrants pay a hotelling contribution towards everyday living costs and a non-clinical care contribution towards non-clinical care, both determined by the means assessment. The basic daily fee, set at 85 per cent of the single basic Age Pension, still applies to everyone.

The non-clinical care contribution is subject to a lifetime cap of $137,917.01, or four years of contributions, whichever comes first. Residents who were already in care before 1 November 2025 remain under the previous means-tested care fee arrangements, protected by “no worse off” grandfathering.

Gifting interacts with all of this in three ways. A larger assessable position can push you above the thresholds for government-supported accommodation, meaning you must pay the accommodation price yourself, either as a lump-sum refundable deposit or through daily payments.

It increases the hotelling and non-clinical care contributions you are required to pay. It can also remove an important safety net: financial hardship assistance is not available where there has been excess gifting during the previous five years.

What a large gift can cost: Dorothy’s story

Consider Dorothy, a widowed pensioner. She sold her home for $450,000 two years ago and moved in with her daughter and son-in-law. A few months later, she gave them $430,000 to clear their mortgage, leaving herself with $20,000 in the bank.

Dorothy exceeded the gifting free area by $420,000. When she later needed residential care, she appeared to be a low-means resident with $20,000 to her name. The means assessment saw something different: $20,000 in the bank plus a $420,000 deprived asset, with deemed income applied to both, for three more years.

Instead of entering care as a fully supported resident paying only the basic daily fee, Dorothy was assessed as needing to pay the accommodation price for her room, plus daily contributions based on means she no longer had.

Her annual fees ran tens of thousands of dollars above her income, with only $20,000 available to bridge the gap (illustrative figures; actual fees depend on current rates and thresholds).

Centrelink routinely identifies prior gifts through data matching when someone enters care. Disclosing gifts early, and planning around them, is far better than discovering the problem at admission.

Granny flats and life interests

Moving in with family, or building a granny flat on your property, is a common arrangement. Money often changes hands through a title transfer, construction costs or a lump sum paid in exchange for the right to live there for life.

Handled properly, these payments can be exempt from the gifting rules through a granny flat interest. Centrelink applies a reasonableness test, and any amount paid above the calculated reasonable value is assessed as a gift.

There is a five-year catch here as well. If the arrangement ends within five years, and your need for care was foreseeable when it was established, the deprivation rules can apply retrospectively.

The tax and Centrelink treatment of these arrangements is covered in detail in our granny flat article.

Gifts that are exempt

Not every transfer triggers the gifting rules. Assets transferred between members of a couple are not treated as gifts because Centrelink already assesses a couple’s assets and income jointly, regardless of whose name they are in.

Contributions to a Special Disability Trust for an eligible family member are also exempt, up to the concessional limit.

If you receive a payment that is not means tested, such as the Blind Age Pension or the War Widow(er)’s Pension, gifting does not affect it. The War Widow’s Income Support Supplement is means tested, however, so gifts can still affect that payment.

Before you gift, get the numbers checked

Generosity and good planning are not in conflict. Gifts within the free areas, properly documented loans and correctly structured granny flat interests can all help you support your family without damaging your own financial position.

The problems arise from large, informal transfers made without considering the five-year consequences.

If you or a parent are weighing up a significant gift, or a past gift has surfaced during an aged care assessment, it is worth having a specialist model the impact before decisions become permanent.

Alteris advisers work through these scenarios every week and can show you what a gift could mean for your pension and aged care costs under the current rules.

Speak with an aged care financial adviser

Frequently asked questions

Can Centrelink find out about gifts I made years ago?

Yes. The aged care means assessment asks about gifts made during the previous five years, and Centrelink uses data matching to identify bank transactions and asset transfers. Gifts discovered after admission are generally assessed from the date they were made, which can result in fee debts and pension adjustments.

Do the gifting limits double for couples?

No. The $10,000 per financial year and $30,000 rolling five-year free areas apply to a couple combined, exactly as they do to a single person.

Can I gift $10,000 every year without penalty?

Not indefinitely. Three consecutive years of $10,000 gifts use the full $30,000 five-year area. A fourth $10,000 gift within that rolling period creates a deprived asset, even though it is within the annual limit. Note the thresholds are for financial years, so you could gift $10,000 in June and a further $10,000 in July which would use $20,000 of the $30,000 5-year area.

I am self-funded and do not receive the Age Pension. Do the gifting rules still matter?

Yes. The aged care means assessment applies the same deprivation rules whether or not you receive the Age Pension. Self-funded retirees who gift above the free areas can still face higher accommodation costs and larger daily contributions when they enter care.

 

This article is general information only and does not take into account your personal circumstances. The illustrative example is based on rules that apply as at July 2026 for Aged care, Centrelink, and tax. The strategies discussed here may not be appropriate for every family. You should seek personal advice from a qualified financial adviser, accountant, and solicitor before acting on the information contained in this article. Figures referenced in this article are current as at the date of publication and may be subject to change. Alteris Financial Group is licensed to provide personal financial advice in Australia and works with families across the country on aged care, retirement, and intergenerational wealth strategies.

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