What you need to know about gifting money to your kids

Gifting money to your children or grandchildren can be a powerful way to provide financial support and impart valuable life lessons. It's an act of generosity that can have immediate and long-lasting impacts on their lives, helping them achieve their goals or navigate financial challenges.

However, it's not as simple as you might think at first. This is especially true if you're on the Age Pension or receiving Centrelink support. Here's what you should know about gift limits, tax implications, and how it might affect your pension.

There are several reasons why you might consider gifting money to your children or grandchildren. While cash gifts usually don't have tax implications, there are some exceptions and potential benefits to consider:

• Financial assistance: Help with goals like saving for a home loan deposit or buying a car
• Teaching financial responsibility: Impart important lessons about saving and money management
• Pre-retirement: Potentially increase your government pension payments by diminishing assets before retirement
• Tax: Most cash gifts are not taxable, but there are exceptions for certain recipients (e.g., charities, religious organisations).

The Australian Taxation Office (ATO) defines a gift as giving away an asset without expecting its market value in return. Cash gifts must be genuine - you can't expect anything back, and they shouldn't relate to the recipient's money-making activities.

Examples include:

• Giving money for a home loan
• Selling an asset for less than its value
• Depositing money into a trust fund you can't control
• Paying grandchildren's tuition fees.

There's no general limit on gifting. However, if you receive the Age Pension or other government benefits, limits apply:

• $10,000 in cash and assets per financial year
• $30,000 in cash and assets over five financial years

This is known as the '$10k and $30k rule' or 'gifting free area'.

If you're receiving Centrelink payments and plan to gift money, inform them within 14 days of the transfer.

If you exceed the gifting limit:

1. The excess is included in your asset test
2. Deeming rules are applied to calculate your income

This could affect your future payments. Centrelink assesses gifts you make every five years to determine if you've reduced your available assets or exceeded the gifting limit.

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 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.

Generally, monetary gifts from relatives don't count as assessable income and don't need to be declared. However, any interest earned on gifted money must 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.