Gifting money to your children can require some planning, particularly for those approaching their retirement age.
Gifting involves parents giving away assets or transferring them for less than their market value. Parents can give away money or other assets to any value they choose at any time. However, before making a gift, parents should carefully consider the effect it may have on their financial security.
Examples of gifting include transferring shares or units in a trust or company and not receiving the full market value for them, or relinquishing control of a private trust or private company.
Parents can gift up to $10,000 a year up to a maximum of $30,000 over a five-year period to their children.
Amounts that exceed these thresholds are considered as deprived assets and included in the assets test. This is called the $10,000 rule. $30,000 is the maximum amount that can be gifted over a rolling period of five financial years. It must not exceed $10,000 in any one year to avoid deprivation. Only $30,000 of gifting in a five-year period can be exempted. This is called the $30,000 rule.
Gifting does not include selling or reducing a person’s assets to meet normal expenses e.g. to buy a washing machine or pay for holidays. It also does not include payments for services parents receive from their children, such as lawn mowing.
Importantly for those close to retirement; the five years also includes the lead-up to retirement. Therefore, if a person’s retirement age is 66 and they are expecting to receive an age pension or allowance, they will need to consider any funds gifted since they were 61.
The gifting rules are the same for singles and couples i.e. couples cannot double the allowable limits.