How the sale of a property can affect your pension payments

Licensed financial adviser Craig Sankey explains how the sale of a property could affect your pension payments.

Licensed financial adviser Craig Sankey explains how the sale of a property could affect your pension payments. Photo: TND

Question 1: I am 67 years old and want to know if I sell my house and don’t find a new house to buy for at least six months, will I lose my age pension while that money is in the bank?

If you have no form of paid employment at all then you will most likely fall under the pension asset test rather than its income test.

If you advise Centrelink that you are looking for a new home, it will not count the amount you intend to spend on your new home for up to 12 months under the asset test. Note this can be extended to 24 months in some circumstances.

However, the funds will be ‘deemed’ under the income test while they are in your bank account.

Given deeming rates are low and both sides of politics say they will freeze them for two years, you can still have more than $2.5 million in your bank account and still receive a very small age pension if you have no other assessable income.

Once you have more than $250,000 in your bank account then your age pension starts to reduce under the income test.

Please see the below table, based on a single aged pensioner and assuming the asset test does not apply (age pension and deeming rates as at May 2022):

As you can see, you can have a very sizeable amount in your bank account, earning interest, and still receive a part age pension.

This is of course predicated on the fact you do not fall under the asset test, and that you have correctly informed Centrelink of your situation.

Question 2: If I retire and still have an Airbnb operating, does a portion of the income generated count as eligible income for pension purposes?

Yes, any income from Airbnb, just like rental income, would be counted under the income test for age pension proposes, less any expenses.

However, you also need to be wary of the asset test.

Under the Age Pension asset test, Centrelink needs to take into consideration any real estate that you rent out (even when not receiving rent), leave vacant, allow someone to live in at no charge, or that you live in when you’re not at your family home.

You should speak to Centrelink before you make any decisions to rent out a room or your home, so that it can determine how you should be reporting your income, and if your pension payments will be affected.

Question 3: Hi, my father has an investment property that he has held since 1992. He has never lived in the property and has always rented it out. My father is about to turn 90 and when he passes, I intend to live in the property with my family as my principal place of residence. I intend to hold onto it for at least 15 years but upon retirement, I may look at selling it in order to downsize. Would I be liable for any CGT on the property incurred during my father’s ownership?

When your father dies and you inherit the property you will also inherit his cost base for CGT purposes.

But no CGT will be immediately payable. Instead, when the property is eventually sold, CGT will apply but you will be eligible for a partial discount if you use it as your primary residence. Note, for CGT purposes, you can only have one primary residence at a time.

You should get the property valued once you inherit it, and keep any records your father has in relation to the purchase price and any costs involved in holding the property, as these will be needed when the property is sold.

As this can be a complex area, I recommend seeking personalised tax advice.

Question 4: If you hold onto an inherited house to solely use as a holiday house – not for renting it out or using as principal residence – what is the tax situation when years down the track the house is sold?

From a property perspective, only a principal place of residence is exempt from capital gains tax (CGT).

Rental properties and holiday homes are therefore both subject to this tax when the house is sold.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives. 

The New Daily is owned by Industry Super Holdings

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