How Helping Your Kids Buy Property Can Affect Your Age Pension

Breaking into the Australian property market has never been tougher for young Australians, and as a parent, your natural instinct is to help. That support can come in many forms: letting them live at home rent-free, gifting a deposit, or acting as a guarantor.

But here's the catch: these generous choices, if not structured correctly, can have serious and unintended consequences for your own Age Pension entitlements.

This guide will walk you through the most common ways parents help their children and, most importantly, explain exactly how Centrelink treats them.

The Most Important Rule: Centrelink's Gifting & Deprivation Rules

Before we dive into specific scenarios, you must understand Centrelink's "gifting and deprivation" rules. These rules are designed to prevent people from giving away assets just to qualify for a higher pension.

Here’s how it works:

• The $10,000 Rule: You can gift up to $10,000 per financial year.
• The $30,000 Rule: You are limited to a total of $30,000 over a rolling five-year period.

These limits are the same for both singles and couples (a couple cannot gift $20,000 per year).

If you gift more than these "gifting free" amounts, Centrelink will count the excess amount—known as a "deprived asset"—in your assets test. They will also apply deeming rules to this amount and count the deemed income in your income test. This assessment lasts for five years from the date of the gift. This can directly reduce your Age Pension payments.

Scenario 1: Letting Your Child Live at Home Rent-Free

This is one of the most common and effective ways to help. You let your adult child live in your home—whether it's a spare room, a granny flat, or a self-contained area—so they can save for their own deposit.

How Centrelink sees this:

• Assets Test: Your principal home remains fully exempt from the assets test. This doesn't change just because your child is living there.
• Income Test: Even if your child contributes to bills, groceries, or general living costs, this is considered "board and lodging," not commercial rent. These payments are not assessed as income by Centrelink and are not treated as taxable income by the ATO.

Verdict: This is generally the safest and simplest way to help your children save without any negative impact on your Age Pension.

Scenario 2: Gifting a Deposit (or Paying Their Debts)

This is the most direct form of help: giving your child a cash sum for their deposit, stamp duty, or legal fees. It also includes paying off their existing debts (like a HECS debt or car loan) to improve their borrowing capacity.

How Centrelink sees this:

• This is a straightforward gift.
• Centrelink will apply the Gifting & Deprivation rules directly.
• Any amount you give over the $10,000 (in one year) or $30,000 (over five years) limits will be counted as a deprived asset and deemed to earn income for five years.

Key Takeaway: If you plan to give a large gift, doing it more than five years before you apply for the Age Pension is the only way to ensure it doesn't affect your entitlements.

Scenario 3: Structuring the Help as a Loan

Gifting is simple, but you lose control of the money. What if your child goes through a relationship breakdown? That gift could be split in a divorce. To avoid this, many parents structure the support as a formal, documented loan.

How Centrelink sees this:

• A formal loan is not a gift.
• Assets Test: The outstanding loan balance is considered a financial asset and is included in your assessable assets (because it's money owed to you).
• Income Test: The loan is treated as a financial investment, and deeming rules apply to the outstanding balance. This happens regardless of the interest rate you charge, even if the loan is interest-free.

Important: If you decide to "forgive" the loan down the track, that act of forgiveness is treated as a gift. The gifting rules will apply to the forgiven amount from that date.

Scenario 4: Acting as a Guarantor on Their Loan

This involves using the equity in your own home as security for your child's home loan. You aren't giving any money, but you are taking on significant financial risk.

How Centrelink sees this:

• At the time you sign: Agreeing to be a guarantor does not involve giving away an asset, so it does not trigger the gifting rules. It has no immediate impact on your Age Pension.
• If your child defaults: This is where the problems start. If your child defaults and you are required to repay the loan, Centrelink's assessment depends on what you do next.
  • If you repay the loan and take legal action to recover the money from your child, the amount is treated as a debt owed to you (an assessable asset, but not deemed).
  • If you repay the loan and do not take legal action to recover it, Centrelink treats the payment as a gift. The gifting rules will apply.

Conclusion: Plan Before You Help

Helping your children get into the property market is a wonderful goal. But as you can see, every method of helping has a direct and different consequence for your own retirement plans.

Understanding these Centrelink rules is the first step. It allows you to structure your support in a way that helps your kids without accidentally harming your own financial future.