Gifting – how does it work

As YOURLifeChoices subscriber Allan considers his options for retirement, he’s keen to know where he stand on the subject of un-demanded rent from his ex-wife.

Q. Allan
Next year I will claim the age pension (born 30/6/1944). For my five pre-pension years my former wife (divorced 1996) has occupied our fully-paid jointly-owned house (joint tenancy) and I have not demanded or received rent from her. During that time she shared the house with our adult son (only child, born 1984) until 2006. Until 2006 our son was a full-time undergraduate university student. He has now left home and lives independently. With her consent, I plan to buy out my former wife’s share of the house in July 2009, after I turn 65 (June 30). This timing is preferred because I am still working and can access my superannuation tax free after age 65. I have two questions: firstly, as a joint tenant do I have the right to demand rent from another joint tenant (my former wife) at presumably half the market rate and, secondly, does my lack of demand for the rent constitute a gift to my former wife that will affect my age pension claim?

A. Provided by Dixon Advisory Service
If Allan and his wife divorced in 1996 one question that should be asked is why is the house still “joint tenancy”? Possibly the house is now owned “tenants in common” which would make more sense.

However, as joint tenants, Allan would not be able to claim rent off his ex wife, as it would be his personal decision not to live in the house. He would have the right to do this.

If “tenants in common”, Allan would have the right to rent your half of the house out to another tenant, as he would own an equal half share or live in it if he chose to.

So if Allan has chosen not to do either, he can not claim it from his ex wife, as she owns half and has chosen to live in the house.

Accordingly, this would not be considered a gift for Centrelink purposes.

Investment properties are not deemed, the net rental income is calculated so Allan’s ex wife living there rent free will not impact for the income test.

It will still be an asset for the assets test though – it depends on how you are means tested i.e. income or assets.

Also, if you hold a house as tenants in common, both parties need to agree on whether or not to lease the property etc, also both tenants would have a right to live in the house provided they do not interfere with the other tenants reasonable enjoyment of the property.

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