When is a liability an asset?

Elisa is unsure how Centrelink will class credit available to her and her husband when it comes time to apply for an Age Pension. Is it a liability or an asset?

Q. Elisa

I am 65 and I retired last year and don’t receive an Age Pension as my husband is still working full time. Early next year, he intends to go part time and work perhaps two or three days a week. When he reduces his hours, we believe that we will both qualify for a part Age Pension. Currently, our assets are below the threshold, but my query is whether the following two items are classed as assets by Centrelink? 

1. We have a Visa card with $15,000 credit limit. We pay it off completely each month so we do not pay any interest. Is this $15,000 classed as an asset by Centrelink? 

2. We have a $100,000 line of credit with our bank, secured against our home. We took up this line of credit about 12 months ago while we were doing home renovations, but now it is paid off is this classed as ‘available funds’?  If we do not draw down on it, and leave it there ‘for peace of mind’, is it classed as an asset? If we draw down, say $10,000 to go on a holiday, is the $10,000 classed as income or as an asset?

A. A Visa card is a credit card and will be assessed as an asset for Centrelink purposes only if the card has a positive balance. Cards that have been prepaid are a financial asset, as the available balance can be used to purchase goods in the same way that cash can. The credit limit liability itself is not assessed as an asset, only the positive balance, which would also be subject to deeming. For example, if you make a payment of $2000 to your credit card and it has no debit balance, which means you have available credit of $17,000, then the $2000 will be assessed as a financial asset and subject to deeming, the $15,000 will not.

A similar principle is applied to lines of credit. A line of credit is a loan secured against a customer’s asset, usually the principal home. The approved funds are available to the customer to access. For Centrelink purposes, only an account with a positive balance can be assessed as an asset and subject to deeming.

Typically a line of credit account has a negative or zero balance and is not an assessable asset nor deemed for income purposes. If you withdraw money for a holiday and place it into an account with a positive balance, it would count as a financial asset and deemed to earn interest until withdrawn and the holiday is paid for.

Therefore, any liability with a zero or negative balance is not classed as an asset. Find out more about Centrelink deeming rates and rules.

Related articles:
Age Pension eligibility
Income and asset tests

Written by Debbie McTaggart

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