Centrelink Q&A: How is a second home assessed?

What are the rules when a husband and wife each own a home?

Centrelink Q&A: Assessing a second home

Stephen and his wife own a home each and want to know how that will affect their ability to get an Age Pension. Financial adviser Kane Jiang has the answer.

Q. Stephen

My wife and I plan to soon be on the Age Pension. My wife solely owns the home we both live in. We both pay for its upkeep, roughly on a 50/50 basis. I have just bought a new house that I solely own and am getting rent from. As we both own separate homes, are they – for Centrelink purposes – both considered to be primary residences and therefore not considered as assets? If we were separated, which we are not, it would be a simpler equation, but we are a married couple who own separate homes. Any advice would be appreciated.

A. The second home, which is rented, will be assessed according to the Assets and Income Test.

The Federal Government’s Guide to Social Security Law states:

If an income support recipient, or their partner, has more than one home:

  • Their principal home is the one in which they spend the greatest amount of time, unless they spend the same amount of time in each of them, in which case the most expensive home is defined as the principal home.
  • The property which is not the principal home is assessed as an asset even when the income support recipient or their partner are living in the property.
  • If the income support recipient or their partner spends a considerable amount of time in a home they do not own, the home they own is the principal home.

For example, the income support recipient, or their partner, may live in the home they own for five months a year and live the rest of the year in holiday rental accommodation. The home they own remains their principal home.

The information contained in this document is general advice only and does not take into account your specific individual circumstances. Please contact AA Financial Planning if you are seeking personal financial advice suited to your particular situation.

YourLifeChoices has created a ‘one-stop-shop’ online tool, RetirePlanner to help pre-retirees and current retirees plan or check their Age Pension entitlements. The tool costs $19.95, which is fully refundable if you are not totally satisfied.

RELATED ARTICLES





    COMMENTS

    To make a comment, please register or login
    Rosret
    26th Feb 2018
    10:56am
    Of course it will. I have another question for the future predicting gurus.
    Is it better to use savings from a fixed term healthy portfolio before accessing super annuation funds or visa versa?
    These are the points I can think of: Taxation on interest earned vs fixed termed guaranteed return.
    At the moment money in the bank feels like a tangible asset however its value diminishes with inflation so its not a good asset.
    Any thoughts?
    Fliss
    26th Feb 2018
    11:27am
    I would suggest transferring the fixed term funds into Super. Then upon retirement the interest earned will be tax free.
    Old Geezer
    26th Feb 2018
    11:39am
    You have to turn your super into pension phase for it to be tax free.

    I advise people to maximise their personal income until they reach their tax free threshold. Any surplus funds should then be in super which is also tax free. Some retired people now earn over $100,000 pa tax free.
    *Imagine*
    26th Feb 2018
    1:04pm
    OG I'd love to see evidence of your claim that "Some retired people now earn over $100,000 pa tax free." My understanding is that they may have an income that is tax free to that level, however, it is not 'earnings', rather, it is a return of their own capital (undeducted contributions) in super. Many superannuants are paying tax on incomes as low as $40 000, owing to the ATO 'shading rules'. "Shading Rules" are where the income of a couple is derived from the superannuation of only one partner. I know this because I pay tax of 32.5% on my SA State pension of $45k, and my small part pension is reduced by 50c in the dollar by Centrelink, ie 50%. All up, the Govt get a saving of 82.5% of my income that is above the threshold and I get the remaining 17.5%. If I had known about this when I was saving for my retirement, then I wouldn't have bothered being so frugal - I would have lived more for the moment like many of my work mates. This system needs a total rethink. Which political party has the nouse to do it?
    Old Geezer
    26th Feb 2018
    1:30pm
    If you have a super balance of $1.6 million and you take the minimum of 5% $80,000 plus you have approx. $30,000 personal income that is tax free you have a tax free income of $110,000. Your super fund could earn 10% be growing more than your take out so your minimum of 5% is even more than $80,000 the next year you take out your minimum pension.
    Sundays
    26th Feb 2018
    2:00pm
    OG your super doesn’t have to be in pension phase to be tax free. Mine is in accumulation mode, but I’ve reached my preservation age, and have withdrawn lump sums tax free as required. In relation to having $1.6M in super, that’s not your average person!
    Old Geezer
    26th Feb 2018
    2:09pm
    If your super is not unrestricted and in the pension phase the fund will pay tax on any earnings. My super fund pays no tax at all and what I take out is tax free too. I pay tax because I exceed my personal tax free threshold on my personal income. What I take out of super does not go into my tax return.
    *Imagine*
    26th Feb 2018
    2:55pm
    The proposed $1.6 mill in super was not a gift, most of it was put into the fund by the superannuant, the remainder was fund earnings. Withdrawals of minimum 5% still means that a portion (27H amount calculated by the ATO depending on age and value of the fund at change to pension from accumulation, gender and life expectancy) will be treated as a return of capital. The portion that exceeds the 27H amount appears on the end of financial year ATO statement as income and may be taxable income depending on whether the tax free threshold is exceeded. That income on the ATO statement is also used by Centrelink to determine part pension status. That is, some super pension income (27H) is not treated by Centrelink as income but the remainder is used to calculate the part pension at the rate of 50ç in the dollar. I can't imagine anybody getting $110k tax free, but if that's what you believe, then my reasoning won't matter.
    Old Geezer
    26th Feb 2018
    3:12pm
    I don't get an ATO statement (PAYG statement) as my super is all tax free. It is an account based pension and has nothing to do with my age or life expectancy. My age does however give a minimum I must withdraw to keep my super tax free. None of it is included in my tax return.

    I don't collect any welfare so have nothing to do with Centrelink but I believe if I did they would deem my super balance as income.

    I transferred all my super into my own SMSF well over 20 years ago now as it was not performing. It has done very well since.
    Rosret
    26th Feb 2018
    6:33pm
    Thanks everyone. You have really helped.
    One key factor I had forgotten was the compulsory percentage draw down once starting to access the super.
    Its made the decision easy. :)
    *Imagine*
    26th Feb 2018
    6:48pm
    OG, unless you are getting the quoted $110k and can shed light on how you get it tax free, then your situation is irrelevant. My wife and I also run a SMSF account based pension (formerly allocated pension) in her name, established in 2004. She has to file a tax return because of shares held outside the fund. That is the only way to claim the return of company tax on dividends (imputation credits). When filling out the return she has to complete a section on the return regarding income from her SMSF, the ATO then calculate the 27H amount (look it up and learn about your life expectancy etc.) the ATO then determine her taxable income. As the total amount of her income is below the personal tax threshold, then no tax is payable but IT IS CALCULATED. So I still don't believe that there is anybody getting $110k tax free unless they are 'working' the confused system. Sorry.
    Old Geezer
    26th Feb 2018
    8:15pm
    I have an account based pension not an allocated pension. My pension is a minimum percentage of my SMSF balance at the 30/6 in the previous year. It has nothing to do with my life expectancy. As I am over 60 I am not required to record it anywhere in my ATO return.

    So one can now have a SMSF with $1.6 million and is required to take out a minimum depending on one's age. Age 75-79 is 6%, So they are required to take out $96,000 so that their SMSF pays no tax. No tax is payable on the $96,000 as they are over 60. They can then also earn approx. $32,000 outside super before they pay tax. That is $128,000 tax free.

    The above is an example only and has nothing to do with my individual financial situation.
    *Imagine*
    26th Feb 2018
    10:21pm
    OG This just shows how complicated this whole mess is. You would know, that as a trustee of an SMSF that you must keep records of the taxed, untaxed and tax free components of your super account and that although some of it may be taxed, the rate of tax may be 0%. I suggest that the following ATO publication 'How Tax Applies to your Super' shows that our discussion has some common ground but we are emphasising different areas. I believe that it is essential reading. It makes your brain hurt, but it is the law.
    https://www.ato.gov.au/Individuals/Super/In-detail/Withdrawing-and-paying-tax/Withdrawing-your-super-and-paying-tax/?anchor=Howtaxappliestoyoursuper#Ifyouare60yearsoldormore1
    This page was reviewed in Jan 18 so is well up to date.
    I think that you misinterpreted the life expectancy reference - it does not refer to how much you draw down, it refers to what fraction of that drawdown (however much it is) is considered to be a return of capital and therefore not considered income by any Govt. Dept.
    MICK
    27th Feb 2018
    2:24am
    OG: I respect your understanding of the superannuation and taxation industries. You have set up your retirement well and are to be congratulated.
    I wish I had taken more time during the accumulation phase and maybe seen an advisor to suggest the correct path to take.
    Having said that we live on a heck of a lot less than your wonderful retirement but still manage to travel like toffs and live well the rest of the year on our (relative) pittance. Horses for courses. Next life give me your contact details and I'll mirror your strategy.
    Cheers.
    Old Geezer
    27th Feb 2018
    11:18am
    I have only taxed and tax free components in my SMSF. I don't have any of those non tax ones which are the ones that go into one's tax return.

    Mick I used the above as an example and has nothing to do with my real situation.
    GrayComputing
    26th Feb 2018
    12:15pm
    This STUPID costly and devastating assessment and re-assessment for a pension by Centrelink has to stop.
    This penny pinching robbing of the poor by this gutless government has to stop.
    Most Economic studies show it would actually save the government money if they just pay an unconditional base pension to every one eligible for a pension. Hooray!
    Contact your MP and tell them this current scheme sucks bad time and you will vote with your feet.
    Anonymous
    26th Feb 2018
    12:34pm
    You may vote with your feet till they blister, the other mob will not have any more sympathy for you. Current mob tightened asset tests and the last one made Aussie workers toil an extra 2 years. Where will your feet go to vote - Greens? They do not like the oldies either, you'd have to have a beard as a male and hairy legs as a female. Just watch protesters on the ABC news service.
    Old Geezer
    26th Feb 2018
    12:52pm
    The change in the asset test was long over due and a great more by the government to change it to a more reasonable level. It was simply stupid that a couple with over $1.1 million was on welfare.
    *Imagine*
    26th Feb 2018
    1:12pm
    OG, You know as well as I do that there any many retired people on welfare, as you call it, who have $1.1 million plus. The reason is that it is not how much money you have, rather it is where the money is invested. Stephen and his wife could sell both their properties and buy one big one and get a more favourable age pension. Why? I imagine everybody knows why, but who has the policy to introduce a more equitable system?
    Old Geezer
    26th Feb 2018
    1:39pm
    Why don't they sell both and buy something more expensive then? Problem solved with no tenants and agents to worry about.
    Sundays
    26th Feb 2018
    2:10pm
    Imagine, I’ve never heard of shading rules, but if you are receiving a defined benefit pension from the SA govt, yes they are subject to tax, but usually there is also a 10% offset. On the bright side, it doesn’t count as an asset, and you are assessed under the income rules which is why you also receive a part pension. Those with Super in private schemes applying for the OAP now (no grandfathered rules for them) find themselves over the asset threshold with an income of $45k, no Centrelink for them. I realise you feel dudded, and this is why with all the various rules, and inconsistencies the whole OAP needs an overhaul
    *Imagine*
    26th Feb 2018
    3:07pm
    Yes. Sundays an overhaul is required. Your private superannuant on $45k can draw down lump sums from the asset, defined benefit systems do not allow that, because there is no asset to draw on. Equally the private superannuant will eventually die and leave the residual super to a beneficiary, whereas the defined benefit pensioner will pass 60% of the income to a surviving spouse for as long as they live, when they die, then there is no asset to pass on. I imagine the bright side of that is, the defined benefit pensioner could marry a twenty year old and that youngster would be well looked after for life. The down side is that the superannuant would probably die early with exhaustion.
    Rae
    27th Feb 2018
    1:04pm
    That is why the 2015 budget changes to superannuation was so unfair to defined benefit pensioners. It is deemed at over twice the actual amount of the original lump sum handed over for the annuity.

    The huge undeducted portion was not fairly treated either. As these people never received tax concessions or the 9.5 % super guarantee you'd expect some sort of recompense which has now been done away with.

    26th Feb 2018
    2:12pm
    You’re planning to retire and you just bought an investment property ?
    Hope it wasn’t for cash unless you had maxed out the non concessional super threshold including bring forward provisions
    And if it WAS for cash - good luck getting the pension
    Old Geezer
    26th Feb 2018
    4:46pm
    Too stressful for me dealing with tenant and agents with you the bunny in the middle.
    Anonymous
    26th Feb 2018
    5:42pm
    Yep not a wise decision on so many fronts
    Florgan
    26th Feb 2018
    8:25pm
    If you have a SMSF only and no pension - Why does the government have a “ minimum” that you have to ... is it called - draw down ? Take out of your super account.
    It just doesn’t make sense.
    Old Geezer
    26th Feb 2018
    8:33pm
    Unless yo take out the minimum depending on your age then your super fund is deemed to be in the accumulation phase and is taxed. Yo also now have to met a condition of release for it to be tax free.

    You can take it out one payment of in multiple payments. I just take it out in one payment in June every year so that the money accumulates tax free for most of the year.
    tactful
    26th Feb 2018
    10:12pm
    Have you thought to speak with a Financial Services Officer at Centrelink?
    There job is to tell you how your choices will affect any Centrelink Payment, it is free. The only other person to answer your question is seeing a Financial Adviser.
    This is not the right place to put such a question as there are far to many idiots and bobby know alls running a muck.
    ph
    20th May 2018
    9:24am
    I am so confused by all these rules and regulations, and have had no helpful advice from the financial adviser I saw. I suspect I will not be eligible for any part pension as I have investment properties. Would it make more financial sense to sell them and put it all into my super? Or maybe leave the super the way it is and have rental income to add to the super pension?


    Join YOURLifeChoices, it’s free

    • Receive our daily enewsletter
    • Enter competitions
    • Comment on articles