Q My wife and I are 75 and 73 respectively living in a retirement Village. We are Self-funded retirees and commenced an account based Pension with the proceeds of our house sale of $650.000 in 2007. My Daughter and 4 children live in Sydney and currently rent for $900 per week. We recently sold an investment property and wish to gift our daughter the lion’s share of the proceeds to fund the purchase of an apartment she bought off the plan. When we gift her the money when or do we qualify for some government support? The apartment is due to be settled later next year. Our current income source has been the rent from the investment property, dividends from a small parcel of shares and $2000 per month from our Allocated Pensions.
A I am quite often asked the question “how I can help my adult children financially?” Whether it be to buy a home, educate children or reduce their debt load. Whilst I appreciate that in all cases parents have the best interests of their family in mind, my role as a Financial Planner is to ensure that your Financial future is protected. Your children will have future pay checks, you however wont! I favour you controlling/retaining capital and then distributing income received in excess of your income needs.
So in the first instance, I would strongly encourage you to make sure that your income needs are met from your Allocated Pension and other investment assets. Likewise you have sufficient retained assets to meet emergency needs and any future capital needs such as holidays, upgrading motor vehicles or importantly accommodation bonds for your care.
Assuming that you have satisfied yourself that you are not putting your personal finances at risk by providing for the family, it is important you are aware of how the Tax office and Centrelink treat the gifting of assets. In relation to tax, there is no gifting tax. However if the gift is from the sale of an investment asset, you may be liable for Capital Gains tax (CGT) on the transfer value. In your case the proceeds have come from the sale of an investment property so assuming the asset was acquired after 1985, the Capital gain would be subject to CGT, so factor that tax into your calculations.
For Centrelink, you are entitled to gift assets. However the limit is $10,000 per Financial Year but limited to $30,000 every 5 years. If you gift an amount or an asset in excess of this amount, the gift will be assessed as a deprived asset for 5 years from the date of the gift. The value will be subject to the Assets test and deemed under the Income test. So if you gift the money to your daughter on 15 November 2014, the value will count as a deprived asset until 16 November 2019.
Centrelink apply 2 tests to determine entitlements to the Age Pension; the Assets Test and the Income Test. Whichever test produces the least amount of Age Pension, is the test that applies. To qualify to receive any Aged Pension, your assets excluding the family home but including the gifted amount if in excess of the gifting limits must be less than the Asset Test limit of $1,145,000 as a home owner couple or $1,292,000 for non-homeowners.
If you do not qualify for the Age Pension, you will not qualify for the Pensioner Concession Card but may qualify for the Commonwealth Seniors Health Card provided that your combined income as a couple is less than $80,000. This amount excludes income from Allocated Pensions commenced prior to 1 January 2015.