Widower's pension slashed for helping child buy home
THINKING about helping your kids enter the housing market? You may want to reconsider.
An aged pensioner who made the mistake of following Prime Minister Malcolm Turnbull's advice to "shell out" to help his kids with a deposit to buy their first home has had his fortnightly payment slashed by nearly 70 per cent.
And according to the government, that's just the way the cookie crumbles.
In May last year, the Prime Minister caused controversy when, in an interview with ABC radio host Jon Faine, he said wealthy parents should "shell out" to help their kids who were "locked out" of the housing market.
But David*, who asked to remain anonymous for fear of reprisal by Centrelink, has had his pension cut from $316 to $99 a fortnight after doing just that, getting caught in the shuffle of overhauled asset test rates and strict rules that count "gifts" of more than a set amount towards assessable income.
"My wife died in 2002 at age 48," said the former small business owner, who now lives on the NSW mid-north coast. "In her final days she asked me to promise that, in her absence, I would fulfil her wishes to help our three children with a deposit for their first home.
"Since her passing, I have struggled to meet her wishes over time and eventually set aside three deposits, one of which has been used in 2008 for the intended purpose, the second expected to be used in the next 12 months, and the third to remain in an ATO-registered trust fund until needed for the intended purpose."
That $66,000 sitting in trust has pushed him over the prescribed limit. Under Centrelink's rules, a maximum of $30,000 can be gifted in a five-year period. Anything above that amount is determined to be a "deprived asset", and becomes subject to "deeming" provisions.
Deeming is the government's way of assessing the income those financial assets would have generated, regardless of the income they actually earned.
So even though his two adult sons are the beneficiaries of, and pay tax on the income they earn from the trust, as far as Centrelink is concerned, he could have earned nearly $6000 in interest on that money, and so it too is added onto his assessable income.
"It's totally unfair," he said. "But unfortunately I've got nowhere I can go with it because the deeming rules are so harsh. Centrelink has deemed those two investments money that I could have kept and put away for my own future.
"Not only that, the last five years' income from those investments has been declared as my income that I've given away.
"The government would be quite at liberty to exempt first homebuyer gifts from families to their sons and daughters. They choose not to at their own cost. I'm one of the last of the Mohicans - no one's going to do it anymore.
"At the moment, they're actually encouraging pensioners to be selfish."
But a spokeswoman for Social Services Minister Christian Porter said exempting first homebuyer deposits was out of the question.
"If gifts to family members for the purpose of assisting them to enter the housing market were not included in the gifting rules, people who made gifts for other purposes may consider that an exemption from the gifting rules is also justified in their case," she said.
"It would therefore be difficult to make judgments about the respective merits of each case.
"Social security law contains gifting rules in recognition that people like to make gifts to family members, and donations to churches and charitable organisations. The social security system is based on the principle that people should use their own income and assets to help meet their day-to-day needs before calling on the community for income support.
"While people are free to make gifts to their families - including to assist them with the purchase of a home - charities and other organisations, where significant gifts are involved, the pension income and assets tests will take this into account.
"The gifting rules, together with the income and assets tests, help ensure that the pension is targeted to those who need it most."
Brett Stene, partner and senior adviser at Jacaranda Financial Planning, said David's story was unfortunate but a "good lesson" in knowing the rules.
He agreed that creating exemptions for certain categories of gifts would be difficult. "The Centrelink gifting rules are very clear, and therefore that clarity provides an opportunity to plan accordingly," he said. "A system that has grey areas everywhere would be fraught."
Mr Stene said the five-year rule meant parents could still help out their kids and become a "cleanskin" five years later. "It's a question of what penalty you pay today to make that decision, which can be advantageous to you in due course," he said.
"[But parents] need to be careful of what assets they do give away to their children, otherwise they can end up being a burden through their own generosity."