Older Australians planning to give money or property to their children are being warned about a little-known $10,000 Centrelink gifting rule that could affect their Age Pension payments. Financial advisers say retirees who transfer assets to family members without understanding Centrelink’s deprivation rules could face reduced pension entitlements, even years after the money has changed hands.
The warning comes as more Australians approach retirement while considering ways to support their children financially and protect their own pension eligibility.
$10,000 Gifting Rule
Centrelink allows Australians to give away money or assets, but there are limits on how much can be transferred without affecting income support assessments.
Under the rules, pension recipients and applicants can generally gift:
- $10,000 in one financial year
- $30,000 over a rolling five-financial-year period
These limits apply to both individuals and couples. Married or partnered Australians cannot each claim a separate $10,000 annual gifting allowance.
Any amount exceeding the permitted limits may continue to be assessed by Centrelink, even though the person no longer owns the money or property.
The rules are particularly important for people preparing to apply for the Age Pension.
Five-Year Trap
Financial adviser Riley Jan, a partner at Firstlight Financial Planning, has warned that Centrelink’s five-year assessment period regularly catches retirees by surprise.
Many people assume transferring assets to their children before retirement will automatically reduce their assessable wealth.
However, Centrelink can continue counting gifts above the allowable limits for five years from the date of disposal.
For example, someone who transferred a substantial amount of money in 2023 could still have part of that gift included in their pension assessment in 2026.
This means financial decisions made several years before reaching Age Pension age can affect future payment eligibility.
The annual and five-year gifting limits must both be considered when planning transfers.
Deprived Assets
Centrelink uses deprivation rules to assess assets that have been gifted or disposed of for less than their reasonable market value.
For example, imagine a parent owns an asset worth $50,000 but sells it to their child for just $10,000.
Centrelink may treat the $40,000 difference as a gift, rather than accepting the discounted sale price as the asset’s full value.
After applying the relevant gifting limits, the excess amount may remain assessable.
The same principle can apply to shares, vehicles, investment properties and other valuable assets.
Selling a property worth $1 million to a family member for $500,000 does not automatically remove the remaining $500,000 from Centrelink’s calculations.
Pension Impact
Excess gifts can affect both the Age Pension assets test and income test.
Under the assets test, the deprived amount may continue to count towards the person’s assessable assets.
Centrelink can also apply deeming rules to calculate income on the deprived amount.
This means money that has already been given away can still influence how much pension someone receives.
For retirees close to the pension eligibility thresholds, the consequences can be significant.
A gift intended to help children purchase a home could unexpectedly reduce the parent’s fortnightly pension payments.
The precise impact depends on the person’s financial circumstances, relationship status and other assessable assets.
Family Loan Warning
Another common mistake involves money parents have lent to their children.
Some retirees provide financial assistance for house deposits, renovations or other major expenses with the expectation that the money will eventually be repaid.
A genuine outstanding loan can remain an assessable financial asset for Centrelink purposes.
If the parent later decides to forgive that loan, the unpaid balance may be treated as a gift.
Cancelling a family loan does not necessarily remove its value from Centrelink’s assessment immediately.
Jan warned that families sometimes overlook this distinction when organising their finances before retirement.
Failing to report relevant changes can also create payment problems if Centrelink later determines that an overpayment occurred.
Funeral Bond Option
While gifting rules can create complications, another financial arrangement may help some retirees reduce their assessable assets legitimately.
Jan highlighted funeral bonds as an option worth considering.
A funeral bond is an investment specifically intended to cover funeral expenses after the holder dies.
Under Centrelink rules, qualifying funeral bonds can be excluded from the income and assets tests up to the applicable allowable limit.
From July 1, 2026, the Funeral Bond Allowable Limit was reported as $16,250 per person, potentially allowing eligible couples to hold $32,500 across qualifying arrangements.
The exemption is subject to conditions, and not every funeral investment automatically qualifies.
How It Works
Money placed into an eligible funeral bond is generally invested until the holder dies, when it is used towards funeral expenses.
Depending on the bond’s terms, any remaining funds may be distributed to the estate or beneficiaries.
For example, a retiree with assessable savings slightly above an Age Pension assets threshold might consider allocating some money to a qualifying funeral bond.
If the investment meets Centrelink’s exemption requirements, it may reduce the amount counted under the means tests.
However, funeral bonds are intended for funeral expenses and generally restrict access to the invested money.
They should not be treated as ordinary savings accounts or unrestricted investment products.
What Retirees Should Know
Australians considering transferring wealth to their children should understand the financial consequences before making large gifts.
The $10,000 annual and $30,000 five-year gifting limits remain central to Centrelink’s deprivation rules.
Retirees should also consider the treatment of discounted asset sales, forgiven loans and financial assistance provided before reaching pension age.
For some households, an eligible funeral bond may provide a legitimate way to reduce assessable assets while setting aside money for future funeral costs.
However, the suitability of this strategy depends on individual circumstances and the product’s conditions.
The key warning is that giving money away does not automatically remove it from Centrelink’s calculations. Understanding the five-year deprivation period can help older Australians avoid unexpected pension reductions and potential overpayment debts.
