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

It isn’t uncommon for parents to want to help their children or other family members financially through a gift of cash. But did you know that providing a financial gift can affect your Age Pension and aged care costs? If this is something you are considering, it is important to understand how this may affect your personal circumstances now and in the future.

Age Pension and aged care costs can be impacted if the gifts are not within Centrelink and Department of Veterans’ Affairs (DVA) rules. Monetary gifts can also affect personal cash flow.

Age pension rules    

Centrelink and DVA allow pensioners to gift $10,000 per financial year and $30,000 over a rolling five-year period without affecting pension entitlements. A gift can be cash, or something else given without an equal payment in return, such as furniture, a car, boat, caravan, shares, managed funds, or real estate. For instance, if you sell your home to family or a friend for less than market value, the difference is considered a gift.

Excess financial gifts are considered by Centrelink/DVA to be a deprived asset and are subject to the deeming rules under the Age Pension income test. Deprived amounts count for a period of five years from the date of the gift, which can mean a loss or reduction of pension. Importantly, gifts given up to five years before applying for an Age Pension are also assessed if they exceed the allowable limits.

The Blind Age Pension or the War Widow(er)’s Pension isn’t means tested, so gifts do not impact these payments. The War Widow’s Income Support Supplement is impacted, though.

Aged care rules

Centrelink or DVA assess an individual’s assets and income to determine their aged care accommodation and care costs. Gifts that are counted as a deprived asset are included in these assessments.

Even if a resident doesn’t receive the Age Pension, gifting and the deprivation rules still apply for aged care. Gifts given within five years of a resident moving into aged care are assessed, and where deprivation has occurred, this can mean the resident is required to pay a higher accommodation payment and/or care costs, even though their assets are lower. This can create a financial burden on the resident in aged care, as they may not be able to meet their aged care fees.

The hardship safety net to help afford aged care cannot be accessed if there has been excess gifting within five years.

Non–assessable gifts

Gifts given to a spouse are exempt. This is because all assets and income are split 50/50 between partners, regardless of who owns the asset or who receives the income.

Exemptions also apply to the gifting rules when giving to a Special Disability Trust – special rules apply.

Granny flats and life interests

Older Australians can choose to live with their families for support, care and comfort as they age. There can be an agreement for the parents to remain in their child’s residence for the rest of their lives. Alternatively, a granny flat can be built on their child’s property for the parents to live in. It can be beneficial to create a Granny Flat Right. However, gifting rules can apply if the granny flat right ends within five years and it could have been anticipated at the time the interest was created that the parent would need aged care within that period. Centrelink/DVA can consider the payment for accommodation or transfer of home title as a gift and subsequently treat it as a deprived asset. This could mean the loss or reduction of pension entitlements and increased aged care costs.

These matters can be complex. To help you make an informed decision about aged care and Age Pension considerations, please contact us to find out about our specialist Lifestyle and Care division.

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