Your home, your asset

The pension ramifications of downsizing the family home.

Debbie helps Toby understand the pension ramifications of downsizing his family home.

Q. Toby
I am 69 and on a part Age Pension. I’m considering selling the family home and downsizing to something smaller and more manageable. My current home is probably worth $550,000 and I’m hoping to have a little extra left over to spend on the extra costs which come with moving home and perhaps some travel. What I need to know is how Centrelink might view this property transaction. Am I in danger of losing my Age Pension?

A. Downsizing is a popular means by which to release the equity in your home, as well as moving to somewhere more manageable. Of course, it’s important to understand the impact to your Age Pension of having additional funds at your disposal.

Firstly, when you sell your principal place of residence, you have 12 months in which to purchase another home. During this time it is important to note that only the proceeds from the sale of your property which you plan on spending on a new home, are classed as an exempt asset. Centrelink will require you to advise it of how much from the proceeds of the sale will not be going towards the purchase of your new home.

Under certain circumstances, for example if you are moving into a new build and experience a delay which is beyond your control, or are legitimately struggling to find a new home, the exemption under the asset-free period can be extended to 24 months.

While the funds are exempt during the asset-free period, any income derived from the funds will be subject to the income test. This may affect your Age Pension entitlement or payment rate.

Once you have found a new home, the exemption ends as soon as you move into the house, as the new residence is deemed liveable. Making renovations and improvements for lifestyle reasons would not extend the exemption period. Currently, if you are a single homeowner, you can hold assets to the value of $748,250 before you lose your part Age Pension.

During the time you are looking for a new property, you may find that you need to enter rental accommodation. If this is the case, then you may be entitled to Rent Assistance. If you are eligible for Rent Assistance you can receive up to $124.00 per fortnight. Rent Assistance is calculated on how much rent you actually pay. If you pay less than $110.00, you will receive no assistance and the maximum amount is only paid for rental payments over $275.33. To find out if you are eligible for Rent Assistance, simply advise Centrelink when your circumstances change and it will advise what payments, if any, you will receive.

Most state and territory governments have abolished stamp duty concessions for pensioners purchasing property, but there are still some available. You should contact your state revenue office for further details.

Before making any financial decisions, you should seek independent financial advice. If you don’t have a financial planner, you can find one in your area by visiting the National Information Centre for Retirement Investments Inc (NICRI)

Find out more about Rent Assistance by visiting HumanServices.gov.au

Find a planner – NICRI.org.au





    COMMENTS

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    Pass the Ductape
    27th Jan 2014
    7:32am
    You say - ' During this time it is important to note that only the proceeds from the sale of your property which you plan on spending on a new home, are classed as an exempt asset. Centrelink will require you to advise it of how much from the proceeds of the sale will not be going towards the purchase of your new home'.

    I'm a little confused! How does one know how much it will cost to purchase their new residence until they actually find something suitable? One might only plan to spend $300,000 of the $550,000 - on the purchase of a new home, but the actual cost might increase dramatically in the final analysis. It might very well be impossible to know in the first instance, how much of the proceeds of the original sale will actually be exempt - so what might be Centrelink's response be in this situation?

    Or is it that the maximum twelve month 'asset free' period you refer to, gives one this time to source out, then purchase a new home, before Centrelink takes into account any residual left over from the sale of the previous home?
    Jurassicgeek
    27th Jan 2014
    9:09am
    knowing centrelink they will charge first and think later....
    Jill
    27th Jan 2014
    11:27am
    Does the purchase price include all the side chargers to lawyers, councils, local governments, realtors and movers that buying a new home involves: the inevitable re-aligning of bathroom fittings and so on? I find it all too much but my place is too big now also. It is a big question getting bigger!
    Aurora60
    28th Jan 2014
    4:58pm
    who makes up all these rules and regulations!
    Nightshade
    31st Jan 2014
    3:59pm
    Q:-
    I sell at $600.000
    I purchase at $350.000
    In between there are costs of sale & purchase
    I also purchase
    a) solar panels
    b) electric stove
    c) electric hot water service
    d) heating & cooling for whole house - ( In the heat I am too hot & suffer heat distress - in the cold I am too cold & my feet hurt & feel like fragile glass )
    e) rainwater tanks - filtration system - pump system ( place clean dry hands under the tap of running water - VIC WATER - then feel your hands - it feels like slimy, greasy, mucus ? - what is in the water ?
    f) I need to modify bathroom to disability friendly system
    g) house to disability user friendly
    h) in a couple of years I may need one of those THINGS so as to ride to the shops - I cannot walk there now - because walking distances unaided is difficult - soon it may be impossible.
    I may not have anything left, after all is said & done, indeed I may be in debt
    Nightshade
    31st Jan 2014
    4:04pm
    The solar unit is so that I can afford the heating & cooling on an aged pension.

    29th Apr 2015
    1:49pm
    My father had a similar personal encounter just a few years back when he had planned on moving to a smaller place to cash out some profits for his old age. However, after having a realtor worked out the finances for him, they found out that those figures will actually have an impact on the pension amount. Hence, you should discuss with a credible agent to help you figure out whether you should sell or not before making any decisions.

    21st May 2015
    5:40pm
    Well it does looks really impressive and I would suggest that you do take in this as part of your dialy activities. It would a bit difficult at first but sure to be very much useful. I hope it will always remain to be so.

    :::: beverly diamonds
    prettysia
    14th Jul 2015
    7:28pm
    I distinguish between house and home.

    Your home is not an asset, you’re not likely to sell it any more than you are likely to sell your kids.

    A house is an asset, because it can bring in income if you rent it out, or sell it for a profit.

    Beth McClure
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