Downsizing: how house sale proceeds are assessed

Like many older Australians, May is considering downsizing, but she’s unsure how selling her home will affect her Age Pension. Debbie explains how the proceeds are assessed.

Q. May

I am on a part Age Pension and thinking of selling my home and buying in a different location. Will this affect my Age Pension or is there a time frame to allow the purchase of a new home? What are Centrelink’s rules on this?

A. Many people choose to sell the family home to release some equity and make life in retirement a little more comfortable financially. This may seem like a good plan, but if you receive a payment from Centrelink, including the Age Pension, the money released by the sale proceeds could have an effect on how much you receive.

To help you make the most informed decision, you should seek advice from an independent financial planner. But if you’re seeking an overview of how Centrelink will assess the proceeds from the sale of your home, here is what you need to know.

When you sell your principal residence, the proceeds from the sale that exceed the amount that you intend to spend on a smaller home are assessed immediately. The amount you intend to use to purchase a new residence can be an exempt asset for a period of 12 months. This is to give you time to choose a suitable home. Should something prevent you being able to do so within the time frame, you can apply to the Department of Human Services to have this period extended by up to 12 months.

All the proceeds from the sale that are held as financial assets are deemed to be earning income.  

Any deemed income will be assessed under the income test, which may affect your Age Pension payment. Your Age Pension payment is reduced by 50 cents for every dollar by which you exceed the income test threshold. To view the current income limits, visit YourLifeChoices.com.au

Any amount leftover after you buy your new home is considered an asset and will be assessed as such. Your Age Pension payment is reduced by $3 for every $1000 by which you exceed the assets test threshold. To view the current asset income limits, visit YourLifeChoices.com.au

When the income and assets test are both applied, your Age Pension payment is the lower amount of the two. So, it is important to understand from the outset that whilst downsizing a family home for a smaller, less expensive property may free up your capital, it could also result in a loss of, or reduction in, your Age Pension income.

Written by Debbie McTaggart

RELATED LINKS

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Downsizing your home is a way to get a new start.

Download our January 2016 Downsizing Guide

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