Can you take out a loan to reduce the value of your assets?

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Norm has shares purchased through an equity loan account and wants to know how they are assessed by Centrelink.

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Q. Norm
Are shares that I purchased using an equity loan account included as an asset in determining my assets for the Age Pension? Wouldn’t the amount be assessed as a loan? As such, should it not be considered an asset until I realise a profit? Would really appreciate if you could offer an answer to my question.

A. As long as the security for the lending is shares, and there is no lending against your principal place of residence, then there is a clear relationship between the asset (shares) and the loan. As such, the asset value can be reduced by the amount of the loan for Centrelink assets test purposes.

Borrowing to invest is not for the faint-hearted. The more you borrow, the greater the risk, as you have to repay the loan regardless of the performance of the investment.

Borrowing to invest only makes sense if the investment return (after tax) is greater than all the costs of the loan, such as interest and fees. If not, you are taking on a lot of risk for an overall low or negative return.

It is important to get independent financial advice when you are investing. If an adviser is connected to a company that they recommend you invest in, this investment may not be best for you. You can look at your adviser’s financial services guide to see any relationships or associations they have with other companies.

Have you ever borrowed money to invest? Did the strategy work out? Would you recommend it for others?

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Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a Centrelink Financial Information Services officer, financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.

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Written by Ben

7 Comments

Total Comments: 7
  1. 0
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    If you have too many assets to qualify for the age pension you might consider spending some of them, have a good time doing it and you’ll soon qualify for a part pension. If that would be too difficult to do you should not have a pension.

  2. 0
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    Dear Mariner, as one who was brought up with a work ethic and put in the hard work to accumulate something, I find it also hard to just fritter it away as you suggest, to get that free handout.
    A few years ago, the Fed Government dropped the qualifying threshold by nearly $350.000.00 for couples. Quite a lot to waste in these current times of low share returns and bank interest rates just to bring my total income up to the same level as those on the Age Pension.
    It is the income from shares that one lives on, not their value as assessed by the dole office, and that income currently is lower than the pension, and we receive no ‘one-off’ pensioner bonuses to assist in this current financial climate.

    • 0
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      Your accumulated riches are for you to use as you are getting older; or that is the way the Govt thinks after bringing in the asset and means test for pensioners. I was brought up the same way and the place has not changed but Australia has and I had to learn to live with today’s socialist thinking: He/she who has never saved anything will get the most benefits in old age. Sad but that is the way it is today, get used to it as I did.

    • 0
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      Absolutely true all you have said Mariner. I should have spent every penny I earnt instead of saving for my old age. Your last two sentences are spot on!

  3. 0
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    When I applied for a part pension quite some time ago, cash in bank, car, household items, were classed as assets. Money owed on a credit card was not recognised. Maybe that is why it is called an asset test not an asset/ liability test.

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      True, and if you still have a mortgage they do not want to know about that either. Maybe in future when your house is included in the asset test they will recognise outstanding monies.

  4. 0
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    How do u answer a specific comment? can’t see that..
    anyhoo – I was surprised to learn that a couple pre pension, who has no income now, was on jobseeker – but has a mortgage but also a paid off holiday home worth more than $400k is now to get no gov support – because the asset test kicked in 28/9 and no allowance is made for the big debt of the mortgage on the asset test? Wonder is they can re-mortgage the holiday home to pay down some of the home mortgage to thus reduce their assets?


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