Planning on downsizing? The rules are changing. September 16th, 2022
On the back of the national surge in house prices, the Government’s new downsizer incentive for seniors could see millions of dollars exempted from Centrelink means-testing for up to 3 years.
Those that take advantage of the scheme, might qualify for a full or part age pension and could even receive rent assistance while they choose their new home.
Currently, seniors who sell the family home to buy or a build a new home, can have the entire proceeds from the house sale exempted from the Asset means test for up to 12 months, when the intent is to use the funds to purchase or build a new home.
You don’t have to provide up-front details of how the money will be used. Apart from the purchase itself, the money can also be used for renovations, decorating or even landscaping.
Only the proceeds from the house sale attract the exemption. You can’t add money from other sources to make that exempt too.
When the new home changeover takes longer than 12 months, seniors can currently request a further 12 month extension, meaning the same asset test exemption can apply for up to 2 years.
But under the flagged changes, the standard 12 month exemption will become 24 months.
And as is the case now, that can be extended for a further 12 months, giving a total exemption period of up to 3 years!
While the money is exempt from the assets test, it is counted under the income test using the current deeming system. Deeming applies a notional rate of interest to the money set-aside for the new home.
Currently, the money is added to other financial assets such as bank accounts, shares, super and most income stream investments like account-based-pensions.
This grand total of financial assets is deemed to be earning a certain amount of interest at rates set by the minister.
The nitty-gritty thresholds and percentages
For singles, the first $56,400 is deemed to be earning 0.25 percent per annum and all financial assets above that level are deemed to be earning 2.25 percent, irrespective of what the investments actually generate.
For couples, the 0.25 percent threshold applies up to $93,600 and then the 2.25 percent rate takes over.
But under another potential change, the entire house sale proceeds will be deemed at the lower rate of 0.25 percent.
A single can earn $190 a fortnight before they lose any pension under the income test and couples, $336 per fortnight.
That lower deeming rate of 0.25 percent will apply until at least July 2024 thanks to another announcement made previously.
Under the changed rules, a couple who sells their home for $3 Million and sets it aside for their next home, would only have $288.46 per fortnight of deemed income.
If they qualified for a part pension and outlaid $205 a week in rent, they would also qualify for rent assistance of $142.80 a fortnight.
A single in a similar position, would have the same among of deemed income attributed to the house sale proceeds.
If the single pensioner paid more than $169 a week in rent, they would be entitled to rent assistance of $151.60 a fortnight.
This payment is not just reserved for people on a full age pension. Rent assistance is paid to part-pensioners as well.
As interest rates continue to rise, you might even end up with some people profiting from these arrangements. A couple with a million dollars in the bank could generate $575 a week in interest plus a further $75.80 from rent assistance.
The changes are subject to passage through parliament but are likely to meet with little resistance.