Sheena Stow-Smith from PensionHelp answers reader questions about the impact on Age Pension entitlements of buying or selling the family home.
Q: If the family home is sold do the proceeds still receive a 12-month exemption under the Age Pension assets test pending the purchase of another property? I understand that the proceeds would be included under the income test.
A: You are correct. Centrelink allows people who are selling their home, with the intention of purchasing a new home, an Assets test exemption.
Any part of the money you receive from the sale that is likely to be used to purchase, renovate or build your new home is disregarded under the assets test for 12 months from the date of exchange of contracts. For example, say Doris and Gary sell their home for $850,000. They intend to purchase a new home for $650,000 and to invest $200,000 into an income stream. Given they only intend to use $650,000 of the sale proceeds to purchase a new home, the total amount of sale proceeds that can be exempt from the assets test is $650,000. The $200,000 invested is not exempt from the assets test.
The exemption can be extended to 24 months in certain circumstances. For example, delays in gaining building approval from the local shire council, accepting a quote for renovation work, or signing a contract to purchase a home. To gain an extended principal home sale proceeds exemption for up to 24 months you must have a continuing intention to apply the proceeds of the sale to purchase, build, rebuild, repair or renovate a new home.
If you’re building your new home, the land is also exempt for 12 months of construction from the date your home settles provided it is valued at less than the money you got from sale.
Although the sale proceeds are exempt under the assets test, the value is considered to be a financial investment and deemed income is assessed.
Details Centrelink will ask for when you sell and purchase a home:
- Settlement letter of both the sale and then the purchase
- Bank statements showing the sale and purchase transactions
- Other asset updates to understand where the funds have come from.
Q: We have the Age Pension but I cannot get a straight answer to my burning question. We want to sell our huge house and buy a smaller house. If we get $900,000 for our house and we buy a smaller 3 bedroom one, can we use the difference in selling and purchasing price to improve our new house eg driveways, solar, painting, fencing, cementing and putting in a small in-ground pool? We presently have a pool.
Or, will the government take the Age Pension from us and expect us to live off the money and not be able to improve the new home?
We don’t have any super; we have $350,000 in bank.
A: As mentioned in my answer to the question above, Centrelink allows people who are selling their home, with the intention to purchase a new home, an Assets Test exemption. Any part of the money you receive from the sale that is likely to be used to purchase, renovate or build your new home is disregarded under the Assets Test for 12 months from the date of exchange of contracts.
Say you sell your home for $900,000 and, for example, you intend to purchase a new home for $700,000 and use the $200,000 to renovate the new home. Then you would qualify for the 12-month Assets Test exemption. This would apply to the $200,000 you hold in your bank until the money is spent or the 12 months is complete.
So your situation would be summarised to Centrelink as:
- Net sale proceeds, $900,000
- New home purchase, an estimated $700,000
- Bank balance, $550,000 but $200,000 would be exempt for 12 months if the intention is to use the funds to renovate your new home.
The exemption can be extended to 24 months in certain circumstances but you must have a continuing intention to apply the proceeds of the sale to purchase, build, rebuild, repair or renovate a new home. For example, delays in gaining building approval from the local shire council that is required prior to entering into an agreement with the builder.
See my answer to the question above for details Centrelink will ask for when you sell and purchase a home.
Q: I am turning pension age soon and should be able to get a part Age Pension. We are currently selling our primary residence and building a new home, to the same approximate value as the one we are selling. We will have to rent for 9-11 months and in the meantime will have about $500,000 in the bank to pay for the new home (land will have already been purchased).
How does Centrelink take account of this in assessing my eligibility as these extra funds will push me over the asset limit?
A: As mentioned in the previous questions and answers, Centrelink allows people selling their home, with the intention to purchase a new home, an Assets Test exemption. Any part of the money you receive from the sale that is likely to be used to purchase, renovate or build your new home is disregarded under the Assets Test for 12 months from the date of exchange of contracts. The exemption can be extended to 24 months in the circumstances mentioned earlier.
So your situation would be summarised to Centrelink as:
- Net sale proceeds after the purchase of the land, $500,000
- Land value will need to be provided to Centrelink
- Bank balance, $500,000 plus your current money. However, the $500,000 would be exempt for 12 months if the intention is to use the funds to build your new home.
If you’re building your new home, the land is also exempt for 12 months of construction from the date your home settles provided it is valued at less than the money you got from sale.
Even though you will still be assessed as a homeowner, you may also be eligible for rent assistance of up to $142.80 per fortnight for a couple if the rent is above $318 per fortnight.
Although the sale prodees are exempt under the assets test, they’re considered to be a financial investment and deemed income is assessed.
Details Centrelink will ask for when you sell and purchase a home and rent in the short term:
- Settlement letter of both the sale and then the land purchase
- Building quotes can assist approve the exemption
- Bank statements showing the sale and purchase transactions
- Rental Agreements.
Q: Can you buy your family home when you receive your super after retirement, not owning any other home, and still receive a full Age Pension if under the threshold?
A: When you are on a Centrelink pension and you change your circumstances, you should inform Centrelink as soon as practical. Changing your residence and purchasing a new home will impact what thresholds are used to assess your pension payment.
The current limits to receive a full pension are:
Assets limits for the full Age Pension (September 2021)
| Living arrangement | Homeowner | Non-homeowner |
|---|---|---|
| Single person | $270,500 | $487,000 |
| Couple | $405,000 | $621,500 |
For more information see our article about the Age Pension assets test.
If you remain below these thresholds, based on your home circumstances, then you will receive the full Age Pension.
For example, Carol, who just turned 67 (Age Pension age) and Peter who is 70 years old and receiving the Age Pension, decide to purchase a home. They use Carol’s super balance of $850,000 to fund the purchase. They also have:
- Their home contents and a car valued at $25,000 and
- Peter has an Income Stream with a balance of $375,000.
Before Carol is Age Pension age, Peter was receiving:
- Rent assistance of $134.60 per fortnight
- Age Pension of $729.30 per fortnight
- Total = $863.90 per fortnight.
Now they have used the funds to purchase a home, they are assessed as homeowners and receive:
- Nil Rent assistance
- Age Pension of $729.30 per fortnight each
- Total = $1,458.60 per fortnight.
If they remain renters, now that Carol is eligible for the Age Pension, they receive no payment from Centrelink as their assessable assets ($850,000 + $375,000 + $25,000 = $1,250,000) exceed the maximum threshold of $1,108,000 as the super funds are now included.
Assets limit for a part Age Pension (September 2021)
| Living arrangement | Homeowner | Non-homeowner |
|---|---|---|
| Single person | $593,000 | $809,500 |
| Couple | $891,500 | $1,108,000 |
| Couple separated due to illness | $1,050,000 | $1,266,500 |
See earlier answers for details Centrelink will ask for when you purchase a home.