Question: I’m a retired pensioner. If I sell our house, can I loan money to my children and not have it assessed as deeming?
Answer: All loans, whether they are to family or not, are treated by Centrelink as a ‘financial asset’, which means they are counted under the asset test and ‘deemed’ to earn a specific rate of return under the income test.
Current deeming rates for a single pensioner are 0.25 per cent on the first $53,000 and 2.25 per cent on amounts over this.
For couples, the rates are 0.25 per cent for the first $88,000 and 2.25 per cent on amounts over that.
It’s also important to note that there must be a clear intention for the money to be repaid to yourself. If not, the ‘loan’ would then be considered a ‘gift’, and treated under Centrelink’s gifting/deprivation rules.
The deprivation provisions will be applied where it is shown that a person has destroyed or diminished the value of an asset, income or source of income.
The most common example of this is where a person does not receive adequate financial compensation in exchange for an asset or income.
If gifts of assets exceed $10,000 in a financial year or $30,000 over any rolling five-financial-year period, the excess gifts are an assessable asset and subject to deeming for five years from the date each gift was made.
Once you reach – or are within five years of – age pension age, the gifting provisions can be applied by Centrelink.
As can be seen from the above, the Centrelink rules are designed so that individuals make use of their assets first, and don’t simply loan or gift them away just to increase their potential age pension benefits.
Note, too, that monies sent to and from your spouse are generally acceptable and are not caught under the above provisions.
You should give careful consideration before loaning or gifting any money, so as not to leave yourself short, as there will be Centrelink implications.
You also need to factor in the costs of buying/renting a new property if you do sell your current home.
It’s important you speak with Centrelink’s Financial Information Service or a financial adviser before making any decisions.
Question: How do I move my grandfathered, deeming-exempt income stream to another fund without losing my current deeming-free status?
Answer: Account Based Pensions (income streams) from super that started before January 1, 2015, are exempt from deeming under the Centrelink income test for income support payments, such as the age pension or disability support pension, if the individual was already in receipt of one of these income support payments before that date.
However, ‘grandfathering’ of this exemption will be lost if you lose your entitlement to the Centrelink payment at any time, i.e. even if you become ineligible for just one fortnight, the grandfathering will be lost.
Grandfathering will also be lost if you rollover or transfer your income stream to another fund. The rules are clear that if you change Account Based Pensions, then grandfathering is lost.
However, it’s important to bear in mind that just because your current income steam is exempt from deeming, it doesn’t mean it is not counted at all in the income test.
It would fall under pre-2015 rules where the rules are a little more complicated. However, your super fund or Centrelink could provide you with these details.
With deeming rates now so low, the grandfathered income testing rules may sometimes be less favourable than the current deeming rules.
It’s worth noting, too, that if you are assessed under the asset test, rather than the income test as many retirees are, it may not make any difference, as the rules under asset testing did not change.
Having said that, you could move from being asset tested to income tested at some point in the future.
If your Account Based Pension provider charges high fees or has poor performance, or if you are generally unhappy with them for a range of reasons, then losing the ‘exempt from deeming grandfathered status’ should not be your only consideration.
This should be weighed up against the benefits of moving to a better product and whether you may be worse off under Centrelink, and if so by how much.
Centrelink or your super fund would be able to inform you of how much is currently being reported under the income test. And it may be wise to seek personal advice before making any final decision.
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.
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