Centrelink

Understanding how your age pension entitlements are calculated.

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

The Age Pension is a social security benefit provided by the Australian government to eligible individuals who have reached retirement age and meet certain residency requirements, income and asset tests. The means testing rules for the Age Pension are designed to ensure that the benefit is targeted to those who need it the most. Here is how the means testing rules work:

Income test: The income test assesses your assessable income, which includes income from a range of sources, such as employment, investments, and superannuation. For singles, the maximum income you can earn before your pension is reduced is $190 per fortnight and for couples, it is $336 per fortnight. Once your income exceeds these thresholds, your pension will be reduced by 50 cents for every dollar you exceed the threshold.

Assets test: The assets test assesses your total net worth, including assets such as cash at bank, investments, and superannuation to name a few. For singles, the maximum asset limit you can have before your pension is reduced is $280,000, and for couples, it is $419,000. Once your assets exceed these thresholds, your pension will be reduced by $3 for every $1,000 you exceed the threshold.

Combined means test: The Age Pension is subject to both an income test and an assets test, and the test that results in a lower rate of pension will be used to calculate your pension entitlement. For example, if your income test results in a pension reduction of $200 per fortnight, and your assets test results in a pension reduction of $150 per fortnight, your pension will be reduced by $200 per fortnight.

It’s important to note that there are a range of other factors that can affect your Age Pension entitlement, including your living arrangements, whether you have a partner, and whether you have any dependents. The rules and thresholds for the Age Pension are subject to change, so it’s important to stay up to date on the latest regulations and seek advice from a financial advisor if you have any questions about your entitlement.

Note: Figures and thresholds effective as of January 2023.

General Advice Warning

The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice.

Disclaimer

All statements made on this website are made in good faith and we believe they are accurate and reliable. Macarthur Wealth Management does not give any warranty as to the accuracy, reliability or completeness of information that is contained in this website, except in so far as any liability under statute cannot be excluded. Macarthur Wealth Management, its directors, employees and their representatives do not accept any liability for any error or omission on this website or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise specified, copyright of information provided on this website is owned by Macarthur Wealth Management. You may not alter or modify this information in any way, including the removal of this copyright notice.

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How are Granny Flat Rights Assessed by Centrelink and DVA?

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

Sometimes living alone may not be the best option and you may wish to move in with your children or another close relative/friend, or you may wish to reassign ownership of your home. The arrangements can be either formal or informal and you receive the right to accommodation for life.

This might involve you moving into someone else’s home or into a granny flat built on their property. Alternatively you can transfer ownership of your home to that person and continue to live in the home.

This arrangement may involve a gift of money, payment of expenses or transfer of the title of your home.

Normally the transfer of money or assets would come under Centrelink/Veterans’ Affairs (DVA) gifting rules. But the granny flat rules determine how this transfer is assessed and the interaction with gifting rules.

How are Granny Flat Rights Assessed by Centrelink/DVA?

You should discuss your individual circumstances with your local Centrelink/DVA office before taking any action to determine how you will be assessed.

If you pay money that equals the purchase or construction costs or you transfer full ownership of your home, this is deemed to be a ‘reasonable amount’. Gifting rules do not apply.

If transfer additional amounts Centrelink/DVA will determine the ‘reasonable amount’ for the granny flat right using a formula with a conversion factor (shown below) based on your age and the maximum rate of age pension (couple rate). Any amount paid or transferred over this reasonable amount is a gift and is assessed under deprivation rules.

Deprivation applies if the amount deemed to be a gift (single or couple combined) is more than:

  • $10,000 per financial year, or
  • $30,000 over a five year rolling period (includes current financial year and the four previous financial years)

Deprived assets are assessed against the income and assets tests for the next five years and may have a negative impact on your Centrelink/DVA entitlements.

If you move out of the granny flat within five years and the reason that you moved could have been anticipated at the time the right was established, gifting rules may be applied retrospectively.

Some details to be aware of include:

  • For Centrelink/DVA purposes, granny flat rights do not need to be written agreements however Centrelink/DVA may request a statement that the arrangement has begun
  • The amount paid or transferred for the granny flat right is an exempt asset (except deprived asset amounts) and you are assessed as a homeowner if the amount paid is above the extra allowable amount of $224,500 (2022/2023) If you pay $224,500 or less you are treated as a non-homeowner and the amount paid is an assessable asset
  • If you are transferring ownership of your home Centrelink/DVA may use the value accepted for stamp duty or may choose to receive a valuation from the Australian Valuation Office

If you have paid money for construction of the granny flat you need to provide a copy of the building contract to Centrelink/DVA to verify the construction cost

Other Things You Should Know

Granny flat arrangements may not work out. You may wish to formalise the arrangement to protect yourself by having a solicitor draw up an agreement and identify any other details. This agreement may include:

  • The quality and type of the accommodation to be provided
  • Whether the accommodation is in a particular property or in any property
  • How the granny flat right can be dissolved if the arrangement is no longer suitable

You should also ask your solicitor to review and formalise your estate planning arrangements such as your Will and Powers of Attorney.

The value of the granny flat can be a significant proportion of your estate so it is important to prevent potential rifts between family members. You may find it difficult to get your money back if you no longer want to live in the granny flat.

Need advice? Contact Macarthur Wealth Management for expert financial advice in Parramatta and Sydney wide on (02) 9683 2869. www.macarthurwealth.com.au

General Advice Warning

The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice.

Disclaimer

All statements made on this website are made in good faith and we believe they are accurate and reliable. Macarthur Wealth Management does not give any warranty as to the accuracy, reliability or completeness of information that is contained in this website, except in so far as any liability under statute cannot be excluded. Macarthur Wealth Management, its directors, employees and their representatives do not accept any liability for any error or omission on this website or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise specified, copyright of information provided on this website is owned by Macarthur Wealth Management. You may not alter or modify this information in any way, including the removal of this copyright notice.

Macarthur Wealth Management Links

Blog  https://www.macarthurwealth.com.au/insights/

Facebook  https://www.facebook.com/macarthurwealthmanagement

Youtube   https://www.youtube.com/channel/UCHde08SRVuDPchprbz0CE_g

Twitter  https://twitter.com/MacarthurWealth

Pinterest   https://www.pinterest.com.au/MacarthurWealth/

Linkedin   https://www.linkedin.com/company/macarthur-wealth-management

Instagram  https://www.instagram.com/macarthur_wealth/

Retirement: https://www.macarthurwealth.com.au/account-based-pension/

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