What you need to know about gifting money to your kids

mum-and-daughter-in-a-white-room

Gifting money to your children or grandchildren can be a wonderful thing to do, but the act of giving may be a little more complex than you think – especially if you're on the Age Pension or you receive other income support from Centrelink. 

So before you whip out your cheque book, there are a few things you’ll want to get your head around, including gifting limits, tax implications and the potential affect on your pension.

This guide sets out to answer some commonly asked questions about gifting money to your kids. 

Why consider gifting?

There are a number of reasons why you might consider gifting money to your children or grandchildren. One of the most common is to help provide them with financial assistance, especially if they’re working towards a goal like saving for a home loan deposit or buying a new car. 

You can also bestow gifts beyond your immediate family to friends, charities or religious organisations.

You may also consider gifting if you’d like to offset an asset before you reach retirement. By doing this, you may potentially increase your government pension payments and improve other benefits you may receive or are entitled to receive.

What is classified as a ‘gift’? 

Gifts can come in different forms, however, a gift is generally defined as selling or handing over an asset with the expectation of either getting less than its market value or nothing in return. 

According to Services Australia, some examples of gifts are: 

  • Gifting money for the purposes of a loan 
  • Selling or transferring an asset that is now less than its original value, such as a car or property 
  • Depositing money into a trust fund that neither you or your partner can control 
  • Paying tuition fees for your grandchildren 

There are a few situations which wouldn't qualify as 'gifting', such as the transfer of funds between a couple or the act of paying off a loan. 

Is there a limit to the amount I can gift?

If you are receiving the Age Pension or other benefits from the government, there is a limit to the amount you can gift your children.

Whether you’re a single person or a couple, the permitted amount is $10,000 in cash and assets over one financial year or $30,000 in cash and assets over five financial years. This is commonly known as the $10k and $30k rule or a ‘gifting free area’.

Do I have to tell Centrelink? 

If you are planning on gifting money in the near future, you’ll need to let Centrelink know within 14 days of when the money transfer occurred. 

What happens if I go over the gifting limit? 

When you gift money to your children, the amount you give is classified as your ‘allowable disposable income’. Any amount that exceeds the gifting limit is then recorded as a ‘deprived asset’, which according to the Australian government means you have parted with an asset for less than its value. 

Every five years, Centrelink assess gifts you make to determine whether you have reduced your available assets or exceeded the gifting limit. 

If you have gone over the allowable gifting limit, Centrelink will do two things: 

  • They’ll include the amount in your asset test – this is a test that decides whether you qualify for the Age Pension and determines the rate it will be paid at. 
  • They’ll also apply deeming and include the amount in your asset test – deeming is a set of rules Centrelink uses to work out your income based on the financial assets you own. 

One potential downfall of deeming is that these rules assume the rate of income your assets earn, regardless of whether they do or don’t meet that assumption.

So if Centrelink believes you may be earning an income on your gifts, it may negatively impact your future payments. 

Can gifting improve my pension payments? 

While gifting can negatively impact your payments, it also has the potential to improve your payments, so long as you stick within the gifting limit. 

Like we mentioned earlier, gifting can be a great way to reduce your assets and earn a slightly higher Age Pension. For instance, according to First State Super, if you decided to gift the maximum $10,000 in a single year and are within the gifting free area, you could increase your pension payments by $780 in a year. 

Will my child have to pay tax on gifts? 

The short answer? No. 

According to the ATO, monetary gifts ‘given out of love’ by relatives do not make up part of their assessable income and therefore does not have to be declared. However, if the money is stored in a savings account which earns interest, the interest will need to be declared.  

In any circumstance, it’s best to consult with a financial advisor or accountant first before you start gifting money to your children. These professionals can give you a more tailored answer based on your circumstances. 

Regardless of whether you’re about to hand over a large sum of money, having a top notch savings account to maximise your returns is essential. You can get started by checking out some of the great options below, or compare more than 200 savings accounts using our savings account comparison tool.

This article was a collaboration between Olivia Gee and Ceyda Erem.

Compare savings accounts - last updated 24 October 2021

Search promoted savings accounts below or do a full Mozo database search. Advertiser disclosure
  • Boost Saver with Go Account
    Maximum rate
    standard interest rate
    Govt Deposit Guarantee
    1.50% p.a. (for $0 to $250,000)
    0.10% p.a.(for $0 and over)
    Yes up to $250,000

    Intro bonus rate of 1.50% for first 3 months, reverting to 1.20% after. Deposit $2,000 each month and make 5 eligible payments from your Go Account. If you are between 18 and 25 deposit $1,000.

    Enjoy a savings account bundled with a spending account. No monthly fees. New customers can earn up to 5000 bonus Virgin Money points on purchases (conditions apply). Benefit together with a joint account

    Details
  • Online Saver
    Maximum rate
    standard interest rate
    Govt Deposit Guarantee
    1.10% p.a. (for $0 to $500,000)
    0.35% p.a.(for $0 and over)
    Yes up to $250,000

    Bonus rate for the first 4 months from account opening

    No account keeping fees. No minimum balance required. Unlimited phone and internet transactions.

    Details
  • Grow Saver
    Maximum rate
    standard interest rate
    Govt Deposit Guarantee
    0.65% p.a. (for $0 and over)
    0.10% p.a.(for $0 and over)
    Yes up to $250,000

    Make at least 1 deposit and no more than 1 withdrawal, including internal transfers or external payments.

    Earn a maximum interest rate of 0.65% per year. Pay no monthly fees. Set up in-app savings goals. Benefit with joint account options.

    Details
  • Fast Track Saver Account
    Maximum rate
    standard interest rate
    Govt Deposit Guarantee
    1.05% p.a. (for $1 to $250,000)
    0.05% p.a.(for $1 and over)
    Yes up to $250,000

    Ongoing bonus rate applied if in the previous month $1,000 or more is credited to the linked Day2Day Plus account and 5 eligible transactions are made by the linked account.

    Earn 1.05% p.a. Bonus Interest in the following month on your Fast Track Saver Account balance. Earn Bonus Interest on your savings, with no minimum balance required.

    Details