Sharing too much with Centrelink

Tony lost his part pension eligibility after downsizing his house and wants to know what he can do about it.

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Q. Tony
I am 67 years of age and until recently qualified for a part pension. I also receive a defined benefits super pension. My wife, 65, doesn’t work and has an annual income from investments of less than $3000. We recently sold our family home and bought a smaller house with a view to building a small extension to it.

The balance of funds after the sale and purchase was deposited in various bank accounts, earning very little in interest. This funding is to be used on the extension.

Doing the right thing, I informed Centrelink of change of address, circumstances, etc. I received a call from them telling me that my pension card would be withdrawn due to the deeming rate indicating that we were earning $140 per fortnight. I wish that we could get that interest rate!

I have some acute medical issues, so now I won’t qualify for reduced chemist costs and medical expenses.

I’m staggered that this change has occurred. We naively thought the proceeds from our modest family home (our only property) would be exempt from the deeming rates.

I can see why some people hide money under their beds. It doesn’t seem right or fair to be hit like this.

Any advice?

A. Firstly, Tony, you did the right thing telling Centrelink about the change in your circumstances. There are big penalties for hiding this information, and you would most likely have been caught.

You may be able to use the downsizer contribution scheme to help in your situation. From 1 July 2018, Australians aged 65 or over have been able to sell the principal residence that they have owned for at least 10 years and make a non-concessional contribution to super of up to $300,000 from the proceeds. Couples can contribute $300,000 each.

The non-concessional super contributions from downsizing can be placed directly into superannuation accounts as tax has already been paid on them. They are not taxed when they are received by your super fund.

You are eligible to make a downsizer contribution to super if you can answer yes to all of the following:

  • you are 65 years old or older at the time you make a downsizer contribution (there is no maximum age limit)
  • the amount you are contributing is from the proceeds of selling your home, where the contract of sale exchanged was on or after 1 July 2018
  • your home was owned by you or your spouse for 10 years or more prior to the sale – the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale
  • your home is in Australia and is not a caravan, houseboat or other mobile home
  • the proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a CGT rather than a pre-CGT (acquired before 20 September 1985) asset
  • you have provided your super fund with the downsizer contribution into super from either before or at the time of making your downsizer contribution
  • you make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually at the date of settlement
  • you have not previously made a downsizer contribution to your super from the sale of another home.

Unfortunately, the money in your super will still have deeming applied, but you may be in a better situation than having the money in the bank earning very little interest.

Also, the sooner you can spend some of that money on the extension you discussed, the sooner you may find yourself able to access a part pension again and receiving the benefits of the pension card.

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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.

Written by Ben

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