Gifting Money? Beware of Centrelink Gifting Rules

Few things feel better than helping out the grandkids. Maybe it’s a bit of cash in a Christmas card, a contribution to school fees, or a head start on their first car or home. But, if you receive the Age Pension or another Centrelink payment, or you’re planning to apply in the next few years, the Centrelink gifting rules are worth understanding before the money leaves your account.

Get it right, and you can be generous without any surprises. Get it wrong, and a well-meaning gift could reduce your pension for up to five years. That’s a long time to pay for one very good Christmas!

The rules aren’t complicated once you know them. Here’s what you need to know about gifting money to grandchildren.

What Counts as a Gift?

For Centrelink purposes, a gift is any time you give away money, assets or income and get less than its full value back, or nothing at all. That includes the obvious things, like:

• Cash or bank transfers to family
• Money for a grandchild’s savings account
• Contributions towards a house deposit

But it also includes some things people don’t expect. According to Services Australia, paying someone else’s bills, school fees or loan repayments, without expecting the money back, can count as a gift. So can selling something for less than it’s worth. If you sell the family car to your grandson for $3,000 when it’s worth $8,000, the $5,000 difference may be treated as a gift.

Donations to charity count too. So if you’re gifting money to grandchildren and giving to your favourite causes, both go into the same tally.

How The Centrelink Gifting Rules Work

You ARE allowed to give money away. The Centrelink gifting rules simply set a limit on how much you can give before it starts affecting your payment. That limit is called the gifting free area, and there are two parts to it:

• $10,000 in a financial year, and
• $30,000 over five financial years, with no more than $10,000 counted in any single year.

You can find the details on the Services Australia gifting page.

Two details catch a lot of people out:

The limits are the same for couples and singles. If you’re a couple, it’s $10,000 a year between the two of you, not $10,000 each. Grandma’s gift and Grandpa’s gift go into the same bucket.

It’s based on the financial year, not the calendar year. The financial year runs from 1 July to 30 June. So a gift at Christmas in December 2026 and another at Easter in April 2027 both land in the same financial year.

What Happens if You go Over The Centrelink Gifting Rules Limit?

If you give more than the free area allows, the excess doesn’t disappear from Centrelink’s view. Instead, it’s treated as if you still own it. This is sometimes called a “deprived asset.”

For five years from the date of the gift, the excess amount:

• counts towards your assets under the assets test, and
• has deeming applied to it under the income test, so Centrelink assumes it’s still earning income for you.

In other words, you no longer have the money, but your pension is assessed as if you do. Depending on your situation, that could mean a lower fortnightly payment for the next five years.

Age Pension Gifting Limit

This is the part many people miss: the gifting rules can also apply to gifts made in the five years before you apply for the Age Pension.

So, if you’re 63, planning to retire in a couple of years, and thinking about giving the grandkids a large sum now “before the pension kicks in,” that gift could still be assessed when you apply. It’s worth getting advice before making a large gift in the lead-up to retirement.

Don’t Forget Aged Care

The gifting rules don’t only affect the pension. Gifts above the free area made in the five years before you need care can also be counted in the means assessment for aged care, which can affect how much you pay for aged care services.

If you or your partner might need home care or residential care in the next few years, that’s another good reason to plan your gifting carefully. Our Centrelink and aged care team can help you see the full picture.

An Example

Meet Margaret and Peter. They receive a part Age Pension and have three grandchildren.

This Christmas, they’d like to give each grandchild $5,000 to put towards their savings. That’s $15,000 in total.

Here’s how the Centrelink gifting rules would treat it:

• The first $10,000 falls within the yearly free area, so it doesn’t affect their pension.
• The remaining $5,000 is over the limit. It will be counted as one of their assets, and deemed to earn income, for five years from the date of the gift.

Now, let’s say they give the same gift a little differently. They give $10,000 in December, then wait until after 1 July to give the remaining $5,000. Because the second gift falls in a new financial year, both gifts can sit within the yearly free area, as long as they stay within the $30,000 five-year limit too.

Is a Loan Better Than a Gift?

Sometimes grandparents might lend money instead of giving it, especially for big things like a house deposit. A genuine loan isn’t counted as a gift. But, the loan itself is still counted as your asset, and deeming can apply to it.

To be treated as a loan, it needs to be properly documented. A handshake or a verbal agreement generally isn’t enough. If you later forgive the loan, the forgiven amount can then be treated as a gift.

Loans to family can be a great option, but they can also get messy if relationships change. It’s worth getting legal and financial advice and putting a proper loan agreement in place.

The Tax Side of Gifting Money to Grandchildren

The good news first: Australia doesn’t have a gift tax. So, your grandkids won’t pay tax just for receiving a gift from you.

But there are a few tax points worth knowing:

Gifting assets can trigger capital gains tax. If you give away shares or an investment property rather than cash, it’s generally treated as if you sold them at market value. That means you may have a capital gains tax bill, even though you didn’t receive any money.

Kids pay higher tax rates on investment income. If a grandchild under 18 earns interest or other investment income from the money, the ATO’s rates for minors can apply. Under these rules, only the first $416 of certain income is tax free, and the rates climb steeply after that. Part-time job income is taxed at normal adult rates.

Who owns the money matters. If you open an account “on behalf of” a grandchild, who actually controls the money can affect who pays tax on the interest. It’s worth checking how the account is set up.

Our individual and business tax returns team can help you understand the tax side before you give.

Smart Ways to Help The Grandkids

There’s more than one way to give. Here are some options worth discussing with an adviser:

Stay within the free area each year. Giving smaller amounts regularly, and spreading larger gifts across financial years, can let you help without affecting your pension.

Give experiences. A family holiday, a day out, or a contribution to music lessons or sport can be just as memorable as cash. (Paying ongoing fees directly can still count as gifting, so keep a tally.)

Consider investment structures. Options like investment bonds are sometimes used to save for a grandchild’s future. They have their own tax rules, so speak to an adviser about whether they suit your situation. Our investment planning team can talk you through the options.

Plan for the future in your will. If your goal is to leave the grandkids a larger sum, your will may be a better place to do it than gifting now. Money left in your estate doesn’t affect your pension while you’re alive. We cover the basics in our simple guide to estate planning in Australia, and our estate planning team can help you get it set up properly.

Look after yourself first. It sounds obvious, but it’s worth saying. Before making a large gift, make sure you have enough to cover your own retirement, health and possible aged care costs. Moneysmart’s guide to super and the Age Pension is a helpful starting point.

Your Gifting Checklist

Before you give, run through these quick questions:

1. Am I receiving a Centrelink payment, or likely to apply in the next five years?
2. How much have my partner and I given away this financial year, including donations?
3. How much have we given over the last five financial years?
4. Could I split a larger gift across two financial years?
5. Am I gifting cash, or an asset that could trigger capital gains tax?
6. Have I told Centrelink about the gift?
7. Will I still have enough for my own retirement and future care?

Centrelink Gifting Rules FAQs

How much can I gift without affecting my pension? Under the Centrelink gifting rules, you can give up to $10,000 in a financial year, and up to $30,000 over five financial years, without it affecting your payment. Gifts above these limits are counted as your asset for five years.

Are the gifting limits higher for couples? No. The limits are the same for singles and couples. If you’re a couple, the $10,000 yearly limit is shared between you.

Do I need to tell Centrelink about a gift? Yes. Services Australia asks that you tell them when you make a gift, so your payment can be assessed correctly.

Do the gifting rules apply if I’m not on the pension yet? They can. Gifts above the free area made in the five years before you apply for the Age Pension can still be counted when you apply.

Is paying my grandchild’s school fees a gift? It can be. Paying someone else’s bills or fees, without expecting the money back, can count as a gift for Centrelink purposes.

Do my grandkids pay tax on money I give them? There’s no gift tax in Australia, so the gift itself isn’t taxed. But if the money earns interest or other investment income, children under 18 can be taxed at higher rates on that income.

Is it better to leave money in my will? It depends on your goals. Money left in your estate doesn’t affect your pension while you’re alive, but gifting now lets you see the grandkids enjoy it. An adviser can help you find the right balance.

Let’s Make Your Generosity go Further

Wanting to help the grandkids is one of the nicest things about being a grandparent. With a little planning, you can give generously, keep your pension on track, and make sure your own future is looked after too.

Our team in Brisbane and Toowoomba helps people every day with Centrelink and aged care advice, estate planning, and planning for pre-retirement and retirement. We can look at your situation, work out how much you can comfortably give, and help you choose the best way to do it.

Ready to have a chat? Book an appointment, call us on 1300 656 260, or get in touch here.

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