Your home and the age pension

In Australia the age pension is not automatically available to everyone who is of pension age. Centrelink has rules about what you can own (the assets test) and how much income you can receive (the income test) before you are entitled to a full or part pension.

If your assets or income exceed the limits set by Centrelink you will not be entitled to the pension. Both tests apply. You may be under the asset limit but over the income limit, or vice versa. Centrelink will use the test that results in the lower amount of pension payable. If you exceed the assets or income limits, you will lose your entitlement to the pension or it will be reduced.

There is a different asset test for homeowners and non-home owners. If you are retired your major asset may be the home you live in. Centrelink does not count your home as an asset when calculating your pension if it is your ‘principal place of residence’ – any residence you occupy or in which you have an interest or the right to occupy. This can include a granny flat, unit leased in a retirement home, manufactured home, caravan, motor home or houseboat. Your principal place of residence is regarded as an ‘exempt asset’.

However this doesn’t mean that you can do anything you like with your home and your pension entitlements will stay the same. Your pension may be affected if:

• there is a change in the way you ownproperty
• there is a change in your livingarrangements, or
• you borrow money using your home assecurity.

Let’s look at how these changes will affect the way Centrelink calculates your pension.

You may decide to sell your home to buy another, smaller home. If you intend to buyanother home within 12 months, the money from the sale of your original home that is to be spent on your new home won’t be counted as an asset for up to 12 months from the date of the sale.\

This can be extended for up to 24 months if you can show that you made reasonable attempts to buy or build a new home within a reasonable time and that you experienced delays beyond your control in doing so.

For example, if you sold your house for $500,000, with the intention of buying a unit for $350,000, that $350,000 would be an exempt asset for 12 months. The remaining $150,000 would be assessed as part of your assets.

Centrelink will also ‘deem’ (take as a fact) that you are receiving income from the amount of money you have received from the sale of your house. Centrelink will assess the ‘deemed income’ from the $500,000 until you pay for the new unit.

If that ‘deemed income’ exceeds the maximum amount allowed under the income test it could affect your pension. Pensions can be reassessed whenever your circumstances change. You can apply for your pension to be reassessed as soon as you have paid for your new home.

You are free to give any of your assets away, including your home. However it could mean that you lose your entitlement to the pension. Centrelink has very strict limits on how much of your assets you can ‘gift’ before your pension will be affected (the ‘gifting rules’). You can give away assets of $10,000 in a financial year, with a limit of $30,000 over a 5 year period. Any assets you give away over this amount will be treated as a ‘deprived asset’ for 5 years from the date of the gift.

If you deprive yourself of an asset Centrelink will assess its market value and this will be included as your asset for the next 5 years.The value of the deprived asset will also be deemed to have income. Both the asset and the income will be taken into account when calculating your pension.

If you transfer ownership of your home to a friend or family member and you don’t get adequate compensation for it (for example if you get less than the market value for the property, or you do not obtain a right to live in the property for life) Centrelink will regard the property as a deprived asset.

For example, if your house was worth $500,000 and you gave it to your daughter Centrelink would regard $10,000 as agift and $490,000 as a deprived asset. If you sold your house to your daughter for $300,000 and the market value was $500,000 Centrelink would regard $10,000 as a gift and regard $190,000 as a deprived asset.

This would affect both the income and asset test. Depending on the amounts involved and your other assets you could be putting yourself over the maximum asset test limit and may lose your pension entitlements. Also, you will be ‘deemed’ to be getting income from the ‘deprived asset’ and this may put you over the income limit for the income test.

You may decide to transfer the title in your property to a family member, purchase a property in your child’s name or to contribute financially to the extension or improvement of their property, on the understanding that you will live there for life. These are commonly referred to as ‘granny flat’ arrangements.

Centrelink has special rules for these arrangements to make sure the arrangement is not being used to give away large sums of money or assets for the purpose of increasing your pension. You should check with Centrelink what these rules are. Centrelink’s ‘gifting rules’ can apply if you contribute too much for your granny flat interest.

Whether your contribution will be counted as an asset depends on how much youcontributed. Your contribution is compared with what Centrelink calls an ‘extra allowable amount’. You should check with Centrelink what the amount is as it changes from time to time.

If your contribution to the property is more than this amount you will be considered to be a homeowner and your contribution will be exempt from the asset test. The homeowner’s asset test will apply to you. You may still be entitled to the pension, depending on other assets and income you may have.You may be eligible to receive rent assistance from the government.

You may also be entitled to rent assistance from Centrelink if you make ongoing payments to your child for the right to stay on the property or to receive care.

For more information about granny flat arrangements see the Legal Aid NSW brochure ‘Moving in with the family? Make sure you protect your interests’.

Borrowing against the equity in your home is a change in your financial circumstances and should be reported to Centrelink.

If you take out a mortgage using your home as security, and give the money to your children or anyone else (for example, to help them buy their own property), Centrelink will treat the loan as your asset and deem that you are earning income from the money you borrowed. This may mean your pension will be reduced. It won’t matter that you did not get any benefit from the loan or that your children are making the repayments on your mortgage.

If your child can’t repay the loan and the bank sells your home to pay the debt, Centrelink will treat the money from the sale of the home as a ‘gift’ to your children and that amount will be regarded as a deprived asset for 5 years under the ‘gifting rules’. You will most likely exceed the asset or income threshold and your pension will be stopped or reduced.

If you take legal action against your child to recover the amount you have to pay to the bank, the gifting rules won’t apply. However the money will still be treated as a loan to your child and this will affect your pension. Agreeing to guarantee another person’s loan won’t affect your pension. However, if that person can’t repay the loan and you, as guarantor, have to pay it, the money you pay will be regarded as a gift to your child and the gifting rules will apply.

For more information about using the equity in your home to help your family, see the Legal Aid NSW brochure ‘Helping your family financially? Understand the risks.’

If you have to move out of your home to go into residential aged care permanently your home is no longer your principal place of residence.

Centrelink will give you a 2 year exemption period before it counts your home as an asset. You can get longer exemptions in some cases. This may apply, for example, if your spouse or partner still lives there. Centrelink can tell you about the exemptions.

You may also be able to ask Centrelink to exempt your home as an asset under the assets hardship rules. You will need to show that it is not reasonable for you to sell your home. Contact a Centrelink Financial Service (FIS) Officer to find out about how to make an asset hardship application.

What will I have to pay?

You will need a formal income and assets assessment for residential aged care from Centrelink or Veterans’ Affairs (DVA). You should arrange this as soon as possible as this takes time.

The income and assets assessment is used to decide if:

• you can get help with your accommodationcosts from the Australian Government, and
• you need to pay a means-tested care fee.

The means-tested care fee is on top of the:

• basic daily fee
• accommodation costs
• fees you will pay if the home is classifiedas extra services.

If you can’t get help from the government you must pay the full costs of your accommodation.

You can find more information about aged care homes costs at www.myagedcare.gov.au

If you are asked to contribute to your accommodation costs, Centrelink will tell you how much you have to pay. You must agree to the amount with your aged care home before you move in.

You can choose to pay:

• a lump sum ‘refundable accommodationcontribution’
• a rental-style payment called a ‘dailyaccommodation contribution’, or
• a combination of both.

You have 28 days from the day you move into the home to decide how you prefer to pay. You must pay your accommodation costs by the rental-style payment method until you decide how you want to pay for your accommodation costs.

All residents in aged care also need to pay a daily fee which is equivalent to 85% of the maximum single aged pension.