Changes to pension tests for downsizers

Recently enacted legislation has changed the way in which the social security assets test and the income test applies to the proceeds of selling your home.

Extending the assets test exemption

Your home, or principal residence, is exempt from the assets test for social security purposes. If you sell your principal residence, you must declare how much of the proceeds you intend to use to buy a new home.

The balance of money left over after you complete both the sale and purchase of a new home is an asset which is included in eligibility tests for income support payments.

The recent legislative change has extended the exemption from 12 months to 24 months, allowing you more time to purchase a new home, or rebuild/renovate your new home to your requirements.

Lowering the deeming rate

Another test that you are required to pass for social security payments is the income test. This test includes deemed income from financial assets, which includes money set aside for your new family home.

The legislative change ensures that this money, which comes from the sale proceeds of your principal home, is deemed at the lower rate (0.25% pa) for the income test. This will allow these proceeds to stay in your bank account without major income test penalties, which ultimately could reduce your entitlement to zero.

Like the assets test exemption, the new law has extended the lower deeming rate from the proceeds of your family home from 12 months to 24 months.

Implications of new rules

These new rules, when put together, will provide you with greater flexibility in the future when you decide to sell your family home. This flexibility can allow you to decide the most appropriate course of action for your circumstances without worrying about whether you will lose any income support or associated entitlements.

The extension of time may also come in handy if you choose to purchase a new home that requires a series of renovations according to your personal needs.

If you require any further information, please do not hesitate to contact our office.

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