Centrelink Q&A: June’s subdivision plan comes unstuck

How should June proceed after making a mistake?

Subdivision plan comes unstuck

June subdivided her large house block and planned to sell the home and build a unit on the rest of the land. She wants to know how best to proceed after making an initial mistake.

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Q. June: I am a widow who lives alone in a large house on a double block, and I recently subdivided the land with the plan to sell my house and build a small unit on the subdivided land. Centrelink has told me that my Age Pension will be reduced from $815 per fortnight to $372 per fortnight because I now have an asset of $150,000 in the new block. I wrongly thought that there would be no penalties for 12 months while I downsized my house. What can I do?

A: Under Centrelink rules, the 12-month exemption applies only if you sell your home and are actively looking for a new one. And even then, it applies only to the amount you plan to spend on your new home. The aim is to allow you a reasonable amount of time to choose a suitable home.

All the proceeds from the sale that are held as financial assets are deemed to be earning income and may affect the Age Pension. To view the current income limits, visit YourLifeChoices.com.au

You should seek independent financial advice on how best you can structure your finances to ensure you maximise your Age Pension payment.

New downsizing legislation takes effect from 1 July. In this YourLifeChoices article, we consider the definition of downsizing, review the various rules attached to the strategy and analyse the potential rewards and implications for your retirement income, including for the Age Pension.

If you have a Centrelink question, please send it to newsletters@yourlifechoices.com.au and we’ll do our best to answer it for you.

 

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    COMMENTS

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    CoogeeGuy
    28th May 2018
    11:06am
    My elderly mother got caught on this point as well. She became too ill and disabled to remain in her home, so we the family, decided we would sell the home, worth $320,000, and place her in a granny flat situated at the rear of our sister's residence. As a result, this caused a large reduction in her pension, as she now had money as an asset, and she was not looking at purchasing another property. We felt bad, as we effectively penalised my mother by getting her to sell her property. Perhaps she may have been less affected should we have just rented out the property, but given the house needed some work prior to renting it out, along with the problems and expenses associated with renting out a property, we did not think it was worthwhile. But I did think the reduction was a bit unfair, given the circumstances in which she had to sell the family home.
    CoogeeGuy
    28th May 2018
    11:10am
    Also, given my mother and father had little assets, and were strugglers all their lives, and never had the money to travel.
    KSS
    28th May 2018
    1:15pm
    How was your mother penalised? She has a more manageable place to live in close to family support, is able to maintain a semblance of independent living due to the close family support, none of the worry of maintaining a large home, and money in the bank to support her pension and lifestyle.

    Seems the only people 'penalised' are the rest of the family looking for an inheritance.
    CoogeeGuy
    28th May 2018
    3:30pm
    Oh KSS! Your cutting comment could not be further from the truth. You should not judge others on your own thoughts or experiences. My brother and sisters always encouraged our parents to spend their money and enjoy it. We never expected an inheritance. And that is a reflection on how well they brought us up.
    .
    My point was, they had little assets, and when my mum sold their primary residence for a mere sum of $320,000 last year, her pension was severely cut. We should have obtained financial advice as suggested by this article, and JohnP.
    Sundays
    28th May 2018
    6:55pm
    CoogeeGuy, It’s not too late to get advice. Check out the Centrelink Granny Flat rules, or rent assistance your mother is entitled to. A Centrelink Financial Advisor can help.
    KSS
    29th May 2018
    8:15am
    CoogeeGuy my comment was genuine - I simply don't understand how your Mother was penalised! Given she released the capital in her house buy selling she would have had more than enough to cover any reduction in pension that may have occurred and still been better off than she was before selling and with money in the bank to boot.

    The only 'downside' is that the family would have had a lesser asset (namely just the cash balance - if any) than they would have had if the house had not been sold. It was her asset after all and went to support her which would have been in line with what you say you encouraged all along. Again, I don't understand how that penalises your Mother.
    HarrysOpinion
    29th May 2018
    11:11am
    KSS - With $350,000, today, in the bank, declared, his mother’s full old age pension would have been reduced by $134 per fortnight (14.76%). That’s a good cut but not a severe cut!
    Problem with most such scenarios is that there is not enough information revealed to make a proper assesment by a 3rd party.
    CoogeeGuy
    29th May 2018
    12:05pm
    Well KSS. Have you looked into just how much money you need to get a placement into a nursing home? This is what we were trying to protect. As it turned out, my mother's health deteriorated to an extent she required around the clock care, and with reluctance from us, required her being placed in a nursing home. The cost included $420,000 Refundable Accomodation Deposit (RAD), and on top of that she had to have $47,000.00 in her savings account to meet the 'Daily Care Fees' and of course, on top of that, the nursing home charges 85% of what Old Age Pension she received. The Federal Government of course contributes the rest, and which is determined when ACAT conducts their Income and Asset Assessment on the individual, being my mum. This is the reason why we wanted to protect out mothers money, and not for our own gain. Your comment was cutting and accusing KSS, and which I did not appreciate.
    KSS
    29th May 2018
    1:51pm
    And you still have not explained how your mother was penalised by selling her home. I still do not understand why you think that way.
    johnp
    28th May 2018
    11:12am
    Yep; thats right re the part about
    "You should seek independent financial advice on how best you can structure your finances to ensure you maximise your Age Pension payment."
    Thats about the only use that most financial planners are to people otherwise they are as useful as "*** on a bull".
    Best to use a good industry super fund but do your research via the ratings sites and refer to sites like this.
    Anonymous
    28th May 2018
    1:47pm
    Yes but try and get money out of your so called good industry fund they don't pay it is there money not yours. Good luck with that
    johnp
    28th May 2018
    1:55pm
    re "ry and get money out"
    thats rubbish as done that b4 with no problems whatsoever
    Sundays
    28th May 2018
    3:27pm
    Roby, if you have reached your preservation age and retired it is very easy to get access to your super. Usually takes less than a week and can often be done online.
    ozirules
    28th May 2018
    12:11pm
    before committing to any change in your financial circumstances, talk to Centrelink. They will explain the resulting impact of your actions on the pension. Explore all your possible choices with them and you will be better equipped to minimise any adverse effect. The advice is free too.
    GrayComputing
    28th May 2018
    12:43pm
    It is time for all of us to rant at our PMs to take action for human decency and a huge stress reduction for pensioners

    NO ASSET TEST FOR A PENSION EVER AGAIN!
    A pension is not welfare.

    Most economist say we will save taxpayers money by dropping asset testing because of the massive overheads cost in running Centrelink and the 10,000 conflicting rules
    Even poorer New Zealand has a NO ASSET pension so it is cheaper and user friendly,

    Do retired and retiring people really look forward and want 100++ visits to/from Centrelink and be part of 3 million waiting queues and lost calls?

    Does your MP really like being part of the system that allows this indirect abuse of the elderly?

    This abuse is actually sponsored by our government and forced down to Centrelink and borders on a criminal act.

    Why do MPs normally compassionate persons let this Centrelink abuse happen at taxpayers’ expense?

    Some opposition and independent MPs stand to lose their chance at being part of the needed government changes

    We all need to tell our MP that these criminal asset tests for a pension must be dropped now.
    NO ASSET TEST FOR A PENSION EVER AGAIN!
    GeorgeM
    29th May 2018
    1:21pm
    Exactly illustrated by this case!
    HarrysOpinion
    28th May 2018
    1:53pm
    Running the Centrelink Pension calculator online reveals that even if June had $150,000 extra asset this should not affect her full pension....unless of course June has a substantial amount of money in other investments which June has not disclosed in this story, which would explain her substantial pension reduction.
    niemakawa
    28th May 2018
    3:18pm
    As with many "hard luck" stories not all the information is given.
    Sundays
    28th May 2018
    3:31pm
    June’s problem is only temporary but she needs to sell the house quickly. Once she spends some money building the unit and moves in, she will be reassessed. This is why you should check things out first
    niemakawa
    28th May 2018
    3:20pm
    The only real choice for any Government is to abolish the assets and income tests and give an age pension to everyone who qualifies.
    GeorgeM
    29th May 2018
    1:26pm
    Yes, Universal Pension for all based only on Age (65 years) and Residency (say 15 years), with NO Asset, Income or Partner tests. This is the only decent way, which minimises admin costs of Centrelink and also gives all incentives to do better by saving, re-aligning assets, investing, etc, etc.

    Can't understand why no political party is advocating such a simple solution! All they have to ensure for funding, is that all pay Minimum Taxes and stop tax avoidance by Companies and the wealthy.
    Rae
    30th May 2018
    6:46pm
    You mean like all the wealthy OECD countries except Australia do?

    Universal pension for all retirees even the ones who worked for 45 years , paid heaps of taxes and saved and invested as well. My goodness you mean treat those people "fairly". I can see shivers and shakes in LNP/IPA headquarters right now at the sheer audacity of actually being "fair" whilst claiming legislation with that label in it.

    We all know fair now means injustice in Rich Man speak.


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