What to think through first
Christmas is when many of us think about family, and for plenty of parents and grandparents that includes thinking about gifting money to family. Whether helping a child into their first home, or giving a significant gift, sharing the wealth you’ve built can be one of the most satisfying things you do.
It’s also a decision that’s hard to undo. Once the money has moved, it’s gone. Understanding the potential impacts before you give so generously protects your own plans, keeps things fair across the family, and avoids unwelcome surprises later.
Let’s take a look at whether the gift you’re considering could affect your retirement plans, how gifting can affect Centrelink entitlements for retirees, and why documenting large gifts or loans matters.
1. Start with your own plans
Generosity works best when it comes from genuine surplus. Before committing to a large gift, test it against what you’ll need for the rest of your life, not just the next few years.
- Will you still have enough? Think about the lifestyle you want in retirement, plus a buffer for health and aged care costs.
- What does it really cost? A lump sum taken out of your investments also gives up the returns it would have earned over the rest of your retirement.
- What if things change? A poor year in markets, an unexpected expense or simply living longer than planned can all make a comfortable margin feel thin.
A gift that later leaves you relying on your children isn’t the gift you intended. If the numbers are tight, a smaller gift now, or help spread over several years, may serve everyone better.
2. Gift or loan? Decide, then write it down
Many family transfers sit in a grey area. Parents call it a gift but quietly hope to see some of it back. Or it’s called a loan with no real plan for repayment. That ambiguity is where problems start.
Decide what it is, then put it in writing:
- A loan: who is lending and who is borrowing, the amount, date, repayment terms, any interest, and what happens if circumstances change. Both parties sign and keep a copy.
- A gift: a short, signed letter confirming who it’s from and who it’s for, the amount, date, and that it doesn’t need to be repaid. If it’s going towards a home deposit, the lender will usually ask for this anyway.
A few reasons why it matters:
- Fairness across the family. A clear record makes it easier to treat each child evenly over time and avoids misunderstandings later.
- If your child’s relationship ends, undocumented loans or gifts intended for your child may be treated as part of the couple’s shared property.
- Centrelink may ask for proof. For example, money put into a family trust or company you don’t control can be treated as a gift, unless a loan agreement shows it’s to be repaid.
3. If you receive, or expect to claim, the Age Pension
Centrelink lets you gift up to $10,000 in a financial year, and no more than $30,000 over a rolling five financial years, without it affecting your entitlement. Both limits apply at once.
Anything above those limits is still counted as your asset under the assets test for five years from the date of the gift. It’s also deemed to earn income, so it counts under the income test too.
A few points that often catch people out:
- The limit is the same for a couple as for a single person. It isn’t $10,000 each.
- It runs by financial year, not calendar year. Christmas gifts fall in the same financial year as anything you’ve already given since 1 July.
- It reaches back. Gifts made in the five years before you claim the pension are assessed too. This matters if you’re in your early 60s, not only once you’re receiving a payment.
- It’s not just cash. Transferring shares or property for less than they’re worth, or waiving a loan, can count as gifting.
- Aged care uses the same limits when assessing your means.
An example. Say you give your daughter $50,000 towards a house deposit this Christmas and haven’t made any other gifts. The first $10,000 falls within the free area. The remaining $40,000 is still treated as your asset and deemed to earn income for five years from the date of the gift.
Before the money moves
Four questions worth answering first:
- Can I afford this and still fund the retirement I want?
- Is it a gift or a loan, and have we both put that in writing?
- Am I treating each of my children in a way I’m comfortable explaining?
- If I’m on, or close to, the Age Pension, how much of this falls outside the gifting limits?
Helping family is one of the best uses of wealth. The aim is simply to do it with your eyes open. If you’re weighing up a larger gift this Christmas, talk to your adviser before you transfer anything. A short conversation now is far easier than unwinding a decision later.
