Renting your home may mean two strikes against your pension

Q. Priscilla
Can I rent out my house to pay off the mortgage while I pay rent to live somewhere else? How will that affect my pension since all the rental income on the house will go towards the mortgage and maintenance of the rental? I would prefer not to sell my house. On the pension, I can’t afford to pay off monthly repayments on the mortgage but I can afford to rent a granny flat for around $400-$500 per month. Please advise if this is feasible, or other alternatives.

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A. Centrelink uses two measures to assess your eligibility for the pension, the assets test and the income test. The assets test assesses the value of the assets you own and the income test assesses any income you earn, including income off your assets. While many things are included in the assets test such as boats, cars, jewellery and investment property, your primary residence – your home – is not.

However, once you move out, and rent out your home, it is no longer excluded from the assets test and furthermore the income you receive as rent will also be assessed under the income test. So, you will be hit with a double whammy and may lose all or part of your pension.

You can deduct expenses from the rental property such as rates and maintenance, but unless it is particularly run down, it’s not going to equal the rent and it kind of defeats the purpose of using the rent money to pay off the mortgage.

If you are going to rent out what was your primary residence, like any changes that affect the assets or income test, you will have to notify Centrelink within two weeks of any changes.

Without further information such as other assets you own, we would be reluctant to offer any financial advice for alternatives.

It would be better to discuss your situation with a Centrelink Financial Services officer. You can make an appointment by calling 13 23 00.

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