How does Centrelink assess offset accounts?

Graham wants to know how Centrelink assesses offset accounts.

Graham has sold his primary home and plans to buy another in 12 months. He wants to know how Centrelink will assess the proceeds of the sale if he places that money in an offset account for a year.

Q. Graham
We have recently sold our principal place of residence, and plan to rent for 12 months. If we use some of the funds as an offset on an investment loan (existing property) with the proceeds of sale until we decide to buy or build. How does Centrelink view this arrangement?

A. Centrelink will not count any proceeds that you plan to use to purchase your next home as an asset. However, these proceeds will be classed as a financial asset and will be deemed to earn interest.

Placing the funds in an offset account will still have the same outcome – they will be deemed to earn interest. Although your offset account doesn’t earn interest in a traditional sense, it does reduce the amount of interest you have to pay on a loan or mortgage. Also, you have ready access to these funds.

This information is of course only general and before making any decisions, you may wish to make an appointment with a financial information services officer at Centrelink or consult with your financial planner or accountant.

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    COMMENTS

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    billy
    10th Jul 2017
    1:07pm
    Having read the article of Graham's situation. My question is if he does rent for a period of 12 months, whilst waiting to build or buy, is he entitled to rent assistance, if so, what are the circumstances that have to occur to get rent assistance. Thank you.
    adbob
    10th Jul 2017
    1:24pm
    This seems to be a conflation of two separate issues.

    1: Do Centrelink count the proceeds of sale of a house against you (in the assets test) before you put (presumably) all or most of the money towards the purchase of another one.

    I think the answer to that is typically no - at least for a while - there's a time limit.

    2: How does Centrelink treat offset accounts - ie for both the income and assets test.

    This will typically apply to a hoeowner who still has a mortgage on their home or someone wiuth an investment property on which they have a mortgage. The sensible thing to do with any surplus cash (short of paying down the mortgage) is to put it in an offset account. There's no interest earned - but there is outgoing interest saved - how do Centrelink treat that income-wise? Assets-wise presumably it's all just netted together in the investment home case - how about the prinicplal residence case - does the amount in the offset account count as an asset?
    Rae
    10th Jul 2017
    5:00pm
    I gather you don't actually have to earn interest for centrelink to deem that you have.
    niemakawa
    10th Jul 2017
    6:24pm
    Deeming rates on Financial Assets are set by Centrelink. They are tiered. If you earn interest which is lower than the deeming rate, then tough luck. If you can get a higher rate, then you do not have to tell Centrelink, so that is good luck. However if for instance interest you receive is capitalised or not withdrawn/spent, then your assets will increase over time. Then you may need to inform Centrelink of this.

    10th Jul 2017
    2:10pm
    The first paragraph of the answer makes no sense! The first sentence say the proceeds won't be, and the next says they will be.
    Which is it?
    niemakawa
    10th Jul 2017
    5:54pm
    The proceeds of the sale of your own home, with an intention to purchase another one are not included as an ASSET by centrelink. However Centrelink will deem you are earning interest on the proceeds, thus it is a Financial asset, earning income. The current deeming rates will apply.

    So if the person is assessed according to income, then they will more than likely see a reduction in their aged pension.

    If they were assessed according to assets prior to the sale, then the proceeds will not increase their assets.

    Centrelink will calculate the pension according to which assessment, Assets or income, gives the lowest amount.
    adbob
    10th Jul 2017
    7:25pm
    From the Human Services website - part of a list of assets exempted from he assets test:

    principal home sale proceeds you’ll use to buy another home within 12 months - we deem the exempted amount and include it in the income test

    So 12 months is th elimit. Not clear what happens of you take more than 12 months to buy another place - does it start to count after 12 months - or do they revoke the exmption altogether.

    Either way, n the meantime. the amount is (as others have already said) deemed to earn the deemed financial assets interest rate - even if it doesn't.

    10th Jul 2017
    2:55pm
    There is not enough information to give a comment. If Graham has a principal place of residence and an investment property, how much is the investment property worth and is the property being rented. I agree that any interest accrued from the funds invested from the sale of the principal residence should be assessed as income. My reasoning for this is that a principal residence accrues no income but the funds from the sale will until another principal residence is found.

    10th Jul 2017
    6:21pm
    Thanks Niemakawa for the explanation.


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