NICK BRUINING: The super-sweet age pension exemptions and rental deal waiting for downsizers
There are some super-sweet concessions available for pensioners selling up the family home.
It seems extraordinary you could sell your family home for $1 million-plus and then collect rent assistance while you search for, or build, your new home.
A special section of the Social Security Act allows for exactly that to happen and, in some cases, you can live under this arrangement for up to three years.
Specialist independent Centrelink consultant Annette Sinclair said the concessions were very generous.
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By continuing you agree to our Terms and Privacy Policy.“Under the rules, the money to be used to acquire your new home can be completely exempt under Centrelink’s asset test,” Mrs Sinclair said.
“The money also receives special treatment under the Centrelink income test.”
Only that amount dedicated to the new home qualifies, so if you don’t plan to use all of the proceeds, the rest immediately becomes assessable under the asset and income means tests.
Under the arrangement, you can’t add extra money to the account and have the extra money captured under the generous concessions.
The new home can be a new build or an established home, and you can also allocate some of the proceeds towards renovations or repairs. In recognition of current building delays, the standard two-year period for the concession can be extended by another year if your new home is not quite ready for occupancy.
“While fully exempt under the asset test, you will still be treated as a homeowner so you can’t access the extra $267,000 of assets allowed for non-homeowners,” Mrs Sinclair said.
Under the income means test, only the lower deeming rate of 1.75 per cent applies, and there’s nothing to stop you investing the money in an at-call, perfectly safe bank account paying much more than the deeming rate as interest.
One major Australian bank is currently paying at least 5 per cent a year, so a $1m account would be paying $50,000 a year, credited monthly. That would go a long way to paying your rent while you look for your new home.
Incredibly, you might also qualify for part or full rent assistance, provided you receive an income support payment like a full or part-age pension.
Up to $223.80 a fortnight is payable to singles who are paying more than $456.20 a fortnight in rent. For couples, the payment can be up to a combined $211 a fortnight, provided rent exceeds $537.14. You receive less rent assistance if you pay less in rent.
“Rent assistance is basically added to your pension payment so it has the effect of lifting the cut-off means test thresholds for the income and asset test,” Mrs Sinclair said.
A couple taking full advantage of the concession and selling a home for $1.5m could easily generate $6250 a month in bank interest. Assuming they rent a home for $800 a week, they would be entitled to the full rent assistance of $211 a fortnight.
Assuming they had an existing $500,000 in assets, including $470,000 in financial assets, they would still be entitled to about $1262 a fortnight in age pension. Add to that $211 in rent assistance and an estimated $98,500 based on 5 per cent a year from their super and investments, total income would be an incredible $136,500-plus a year.
“Needless to say, they would be liable for some income tax, but that would still leave them with a combined after-tax income of well over $100,000 per annum, less the money paid in rent,” Mrs Sinclair said.
Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association
