Helping Kids Buy Property? How it Can Affect Your Age Pension (Part 2)

More and more Australian parents are stepping in to help their kids buy property. But if you’re receiving the Age Pension—or planning to apply for it one day—it’s crucial to make sure your generosity doesn’t accidentally put your own retirement income at risk.

In Part 1 of this series, we explained Centrelink's critical gifting and deprivation rules and covered the pension implications of gifting cash, providing loans, and acting as a guarantor.

Welcome to Part 2, where we’ll dive into more complex scenarios, including:

• Selling a property to your child below market value
• Gifting a property by transferring the title
• Co-buying a home with your child
• Gifting rental income

A Quick Recap: The Gifting & Deprivation Rules

Centrelink's gifting rules are designed to prevent people from giving away assets to qualify for a higher pension. Here are the limits:

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

If you gift more than this, the excess amount is called a "deprived asset." This deprived asset will be:

• Counted in your Assets Test for five years.
• Deemed to earn income and included in your Income Test for five years.

This can significantly reduce or even eliminate your Age Pension payments.

Scenario 1: Selling Property Below Market Value

Let's say you own an investment property worth $800,000, but you sell it to your child for $500,000 to help them out.

How Centrelink Sees This: Centrelink treats the $300,000 difference as a gift.

The Pension Impact: That $300,000 gift is well over the $10,000 annual limit. The excess amount ($290,000) will be treated as a deprived asset. For the next five years, that $290,000 will be added to your assessable assets and will be deemed to be earning an income, impacting both tests and reducing your pension.

Scenario 2: Gifting a Property (Transferring the Title)

This is a more extreme version where you simply transfer the title of a property to your child, receiving nothing in return.

How Centrelink Sees This: The full market value of the property is considered a gift.

The Pension Impact: If the property is worth $800,000, the excess amount ($790,000) will be treated as a deprived asset for five years, almost certainly making you ineligible for any Age Pension during that period.

Critical Considerations for Any Property Transfer

Whether you sell below market value or gift a property outright, the Age Pension is just one part of the puzzle. You must also consider:

• Timing is Everything: The 5-year gifting assessment period is key. If you transferred the property more than five years before you apply for the Age Pension, the gifting rules no longer apply. This shows just how critical long-term planning is.
• Capital Gains Tax (CGT): The ATO's "market value substitution rule" applies. This means you will be taxed as if you sold the property for its full market value, even if you received less or nothing at all. (Note: This may not apply if the property was your principal residence).
• Stamp Duty: Your child will have to pay stamp duty (or transfer duty) based on the property's full market value, not the discounted price you sold it for.
• Your Own Financial Security: Helping your children is a wonderful act, but it should not come at the cost of your own financial security in retirement.
• Asset Protection: Once you gift that property, it becomes your child's asset. If their relationship later breaks down, their ex-partner could be legally entitled to half of it.

Scenario 3: Co-buying a Home with Your Child

This is a common strategy, but it has two major traps.

Trap A: Unequal Contributions

Imagine you buy a $1 million house with your daughter. You are listed as 40% owners on the title, but you actually contribute $500,000 (50% of the price) to help her.

How Centrelink Sees This: The extra $100,000 you paid above your 40% ownership share is treated as a gift.

The Pension Impact: The excess ($90,000) becomes a deprived asset for five years, reducing your pension.

Trap B: The Long-Term Asset Trap

This trap springs years later, even if your contribution perfectly matches the title.

The Scenario: A couple, 55, help their daughter buy a $500,000 home. They take a 50% share ($250,000) to help her secure the loan.

12 Years Later: The couple reaches Age Pension age. The house is now worth $1 million (their share is $500,000) and the mortgage is paid off. They have $700,000 in super and savings and expect a part-pension.

The Trap: Their 50% share in their daughter's home is an assessable asset. That extra $500,000 in assets pushes them well over the asset test cutoff, making them ineligible for any Age Pension.

To fix this now, they would have to transfer their share to their daughter, which would trigger a large CGT bill and start a new 5-year gifting period for the $500,000 value. This is a costly mistake that could have been avoided with different planning (like acting as a guarantor) 12 years earlier.

Scenario 4: Gifting Rental Income

What if you own an investment property and, instead of collecting the rent yourself, you instruct the tenant to pay it directly to your adult son?

How Centrelink Sees This: This is called deprived income.

The Pension Impact: Even though you no longer receive the rent, Centrelink will still assess it as part of your income as if you never gave it away. It will be counted in your Age Pension income test.

Interestingly, if you had simply let your son live in that property rent-free, no income would be assessed because no rent is being received or redirected.

Conclusion: Help Your Kids the Smart Way

Helping your children get on the property ladder is a powerful and generous act. But as you can see, the way you structure that help can have massive, long-term consequences for your own retirement.

Think through the long-term impacts, and if you're unsure, seeking professional financial advice can make all the difference, helping you avoid costly tax and pension traps down the line.