When a gift wasn’t gifting

Deprived assets and Centrelink

Before we get into the case, it is important to understand what a deprived asset is and how Centrelink assesses it.

A deprived asset is an asset that has been disposed of for nil value, or less than its value – that is adequate consideration has not been given.

Examples include:

• Large gift of cash: Grandma gives $100,000 to grandson. This full amount is considered a deprived asset (less the Allowance Disposal Free Area).
• Selling a house at lower value: Grandma sells a unit worth $800,000 to grandson for $400,000. The difference of $400,000 is regarded as a deprived asset (less the Allowance Disposal Free Area).

Where an asset is “Deprived”, it is counted in the Centrelink assessment (Asset and Income tests) for the next five years, and then is removed. The deprivation value stays the same even if the value of the asset given changes (e.g. The grandson above spends that $100,000).

Gifting and Centrelink rules

Gifting rules are often misunderstood. While you can only give $10,000 a year or $30,000 over a rolling five-year period without it being considered deprivation, while technically true, the thought should be the other way around. This amount is known as the Allowance Disposal Free Area and is an exemption on deprivation. There are a few other exemptions such as seen in granny flat rights.

The situation

Paget and Secretary, Department of Social Services (Social Services second review) [2023] AATA 4215 (6 September 2023).

Wendy Kay Paget, living in Perth, had recently lost her husband and had not seen two of her adult children in some time, as they both lived in the United Kingdom.

Because she was “to frail to travel”, she made agreements with her two children to cover the cost of their and their family’s affairs and sent them the money accordingly, to the total of $27,736.

When she updated her Centrelink information, her pension was decreased in line with this money being sent to her children.

Normally, Centrelink will ask for evidence for large transfers like this, looking to see if it is a gift, or if it is intended on being paid back, and they record it differently in their records.

The judgment said that Paget’s pension then decreased after making the gift. This actually makes no sense and it is more likely that it initially went up (because her assessable assets went down) and then returned to their prior position once reviewed by Centrelink.

Under usual circumstances, Centrelink made a fairly vanilla call here, that Paget gave money to her kids, for no consideration, meaning this money would be considered a deprived asset (ignoring the Allowance Disposal Free Area).

This was, however, overturned by the tribunal.

What is consideration?

The crux of this review sat on the basis of “what is consideration?” Given that for an asset to be deprived, it would have nil or inadequate consideration.

What they ultimately concluded was that by having her family visit, where she could not visit them, Paget got her money’s worth through happiness. They referenced s 1123 of the Social Security Act which includes the criteria of an asset to be disposed of as having no consideration in money or money’s worth for the destruction, disposal or diminution; or inadequate consideration in money or money’s worth for the destruction, disposal or diminution.

They also noted the section of the act that refers to the dominant purpose of the course of conduct was to obtain a social security advantage. Paget just wanted to see her family.

A fun note, for anyone who did legal studies at high school, when defining consideration, the judgment, in part, refers to Carlill v Carbolic Smoke Ball [1893] 1 QB 256.

What can we learn from this?

When there is legitimate reason to spend and enjoy your money in retirement, it is not always considered a gift or deprived asset.

I would be careful in just assuming this applies to any amounts or assets given and would warn against using it as the basis to “give $1,000,000” to my grandchild because it makes me happy. A lot of this decision was circumstantial, given Paget’s health, family situation and the recent passing of her husband, but it is interesting, nonetheless.

Nathan Fradley is a specialist financial adviser at Nathan Fradley Advice.