When a pensioner lends money to a family member, Centrelink assesses the outstanding balance as a financial asset with deeming applied. The arrangement must be properly documented — a written loan agreement with repayment terms — or Centrelink treats the payment as a gift under the deprivation rules. Pensioners can also forgive up to $10,000 of loan balance per year within the annual gifting allowance.
For Age Pension recipients who have provided substantial financial support to adult children — a housing deposit contribution, a business start-up advance, help with a medical or family crisis — the Centrelink treatment depends almost entirely on one question: is it a loan or a gift? The answer shapes the assets test, the income test, and the long-term pension outcome, and Centrelink's position on this distinction is firmer than many pensioners realise.
How are loans to family members assessed for the Age Pension?
A properly documented loan to a family member is assessed as a financial asset at the outstanding balance. As the loan is repaid, the assessed value decreases — and when it is fully repaid, the asset is removed. While the loan is outstanding, deeming applies to the balance at the same rates as other financial assets: 1.25% per annum on the amount up to the deeming threshold, and 3.25% on amounts above it (rates applying from 20 March 2026). For couples, the combined below-threshold rate applies to the first $106,200 of total financial assets.
On a $200,000 family loan for a pensioner couple with other financial assets already above the threshold, the loan balance generates approximately $6,500 per year in deemed income (at 3.25% above-threshold rate). That deemed income flows into the income test and can reduce pension rate depending on the overall income position. The loan balance also contributes to the assets test — $200,000 of additional assessable assets at the taper rate of $3 per fortnight per $1,000 excess reduces pension by $600 per fortnight if fully above the assets free area, though the actual reduction depends on the full asset picture.
This is the "expected" treatment for a properly documented loan — transparent, declining over the loan term, and manageable if the terms are structured thoughtfully.
What are the gifting limits and how do the deprivation rules apply?
A gift is different. The gifting provisions allow a pensioner (or couple) to give away up to $10,000 in any financial year and no more than $30,000 across any rolling five-year period without affecting the pension. Amounts above those limits are treated as a deprived asset — Centrelink continues to assess the excess as if the pensioner still holds it, for five years from the date of the gift. After five years, the deprived amount is removed from assessment.
A $200,000 outright gift in one year produces a $10,000 allowance in year one and $190,000 of deprived assets assessed for five years. The pension impact can be substantial and runs for the full five-year period regardless of what the recipient does with the money.
Why is documentation the key distinction between a loan and a gift?
The loan-versus-gift distinction is not merely a matter of intent. Centrelink expects documented evidence that the arrangement is genuinely a loan. A written loan agreement signed by both parties, specifying the amount, the parties involved, the date, the repayment terms (even if on demand rather than a fixed schedule), and the interest rate (even if zero), is the baseline. Beyond the document itself, the arrangement should carry the characteristics of a genuine loan: the borrower is aware of the obligation, there is a reasonable expectation of repayment, and repayments are occurring or are scheduled.
Without documentation, Centrelink is likely to treat the payment as a gift and apply the gifting rules rather than loan treatment. An undocumented $200,000 "loan" that Centrelink reclassifies as a gift creates five years of assessed deprivation from the date of transfer — an outcome that could have been avoided entirely with a simple written agreement prepared in advance. Preparing the agreement after the transfer is made, or reconstructing terms later, carries far more risk than documenting before the money moves.
How can a family loan be gradually forgiven within the gifting limits?
Sometimes circumstances change and a pensioner decides — often quietly — to forgive a family loan rather than pursue repayment. From a Centrelink perspective, forgiving a loan converts it to a gift and brings the gifting rules into play. But this doesn't have to trigger the deprivation provisions if the forgiveness is managed deliberately.
Each year, a pensioner can forgive up to $10,000 of the outstanding loan balance within the annual gifting allowance without creating a deprived asset. Over time — ten years for a $100,000 loan, twenty years for a $200,000 loan — the full balance can be converted to a gift without any single year's forgiveness exceeding the limit. This gradual approach is well-established in retirement income planning. It requires the loan to be documented in the first place (so Centrelink recognises subsequent forgiveness as a formal reduction in the outstanding balance), and it requires consistent reporting as the balance decreases.
What are the family law and estate planning implications of a documented loan?
For loans to adult children who are in relationships, the existence of a documented loan rather than a gift has value beyond Centrelink. In a family law property settlement, a documented loan appears on the child's balance sheet as a liability to the parent and is treated accordingly in the division of assets. An undocumented gift is typically treated as income or an asset in the relationship pool without a corresponding liability. Parents who provide material financial assistance to a married or de facto child and want the right to recover it if the relationship ends should ensure the arrangement is documented — not because they anticipate the worst, but because a piece of paper now is far less disruptive than a disputed recollection later.
When a pensioner dies with an outstanding family loan, the loan passes to the estate as an asset. The executor has an obligation to recover it unless the will directs otherwise. Pensioners who intend for the loan to be forgiven on death, or who wish to adjust the estate distribution to account for it, should address this explicitly in the will and communicate the intention to the relevant family members.
What is the practical starting point for pensioners with family loans?
For pensioners who have already provided money to a family member without formal documentation, it is worth reviewing whether a written agreement can be established now to put the arrangement on proper footing going forward. For pensioners who are planning a family loan, the documentation should be prepared before the money moves — preferably with the involvement of a solicitor for substantial amounts. And for pensioners already on the Age Pension with material family loans, a Centrelink-experienced financial adviser can confirm that the current reporting of the loan balance is accurate and that the ongoing impact on pension rate is as expected.
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Key takeaways
- Centrelink assesses a documented loan to a family member as a financial asset at its outstanding balance. Deeming applies at 1.25% below the threshold and 3.25% above it (rates from 20 March 2026). As the loan is repaid, the assessed balance reduces; when fully repaid, the asset is removed from assessment.
- For gifted amounts above the annual limit of $10,000 (and $30,000 over any rolling five-year period), Centrelink applies the deprivation rules — assessing the excess as if the pensioner still holds it for five years from the date of the gift, regardless of what the recipient does with the money.
- Documentation is the practical dividing line. A written loan agreement specifying the amount, parties, date, repayment terms, and interest rate (even if zero) is required for Centrelink to treat the payment as a loan rather than a gift. Undocumented arrangements are likely to be classified as gifts.
- A pensioner can forgive up to $10,000 of a family loan per year within the annual gifting allowance without triggering the deprivation rules. A large loan balance can be progressively converted to a gift over many years — but only if the loan was documented in the first place and forgiveness is reported consistently.
- A documented family loan has value beyond Centrelink: in a family law property settlement, it appears on the borrowing child's balance sheet as a liability, whereas an undocumented gift typically forms part of the relationship asset pool. Intentions about forgiveness on death should be addressed explicitly in the will.
Frequently asked questions
How does Centrelink treat a loan I made to my adult child?
If the loan is properly documented — a written agreement specifying the amount, parties, date, repayment terms (even 'on demand'), and interest rate (even zero) — Centrelink assesses the outstanding balance as a financial asset and applies deeming at current rates: 1.25% on amounts up to the threshold and 3.25% above it. The assessed balance decreases as repayments are made and is removed when the loan is fully repaid. Without proper documentation, Centrelink is likely to treat the payment as a gift and apply the deprivation rules instead.
What are the gifting limits for Age Pension recipients?
A pensioner (or couple) can gift up to $10,000 in any financial year, and no more than $30,000 across any rolling five-year period, without affecting the pension. Amounts above those limits are treated as deprived assets — Centrelink continues to assess the excess as if the pensioner still holds it for five years from the date of the gift. After five years, the deprived amount falls off assessment. A $200,000 outright gift in one year leaves $190,000 assessed as a deprived asset for the full five years.
What happens if my family loan doesn't have a written agreement?
Without documentation, Centrelink is likely to treat the payment as a gift and apply the gifting rules rather than loan treatment. For a large transfer, this means most of the amount is assessed as a deprived asset for five years — an outcome that can substantially reduce pension entitlement for that full period. Preparing the agreement after the money has moved carries more risk than documenting before it goes. For pensioners who have already made an undocumented transfer, it is worth reviewing whether a written agreement can be established now to put the arrangement on proper footing.
Can I forgive a family loan without affecting my pension?
Yes, but only up to $10,000 per year within the annual gifting allowance. Each year, a pensioner can formally forgive up to $10,000 of the outstanding loan balance, and that reduction is treated as a gift within the allowable limit — not as a deprived asset. Over time, a substantial loan balance can be progressively extinguished this way. The approach works only if the loan was properly documented in the first place (so Centrelink recognises formal forgiveness as a reduction in the assessed balance), and requires consistent reporting as the balance decreases.
Does it matter for family law if the money was a loan versus a gift?
Yes, significantly. If an adult child is in a relationship and you have provided them money, a documented loan appears on their balance sheet as a liability to you in any family law property settlement — meaning it is not simply pooled into the relationship assets. An undocumented gift is typically treated as part of the asset pool without a corresponding liability. Parents who want the right to recover funds if their child's relationship ends should document the arrangement as a formal loan, not because they anticipate the worst, but because contemporaneous paperwork is far stronger than a disputed recollection later.