Centrelink & Property Investment

I cannot find the post where we discussed this issue just two days ago. I promised to come back with the missing information, and here it is.

Centrelink payments are asset and income tested, never both at the same time. Family payments are only income tested. Parenting payments are either income or asset tested and Age pension is income or asset tested.

I will only address asset test. If your income cuts you off the information below is irrelevant.

If you are on the pension be it age or parenting payments, and you are tested according to your assets, your own home is an exempted asset regardless of value. Furthermore,

Homeowner you can get full age pension (Age) or Parenting Payment (PP) if your combined assets (besides your own home) do not exceed $150,000 and payment will reduce gradually and faze out at $302,500 for single person and, 212,000 to 466,500 for couple.

Non-homeowner get full Age or PP if combined assets are below 257,000 and part payment up to $410,500 in assets if single and 320,000 to 574,500 if partnered

Now if you own your own home and are on a reduced income so that your wife receives full or part Parenting Payments, if you take a loan against your home to buy an investment property, the way this will affect you is not straight forward, and you would be surprised at the strange conjectures people would tell you about this, even the one working in Centrelink.

However, it is simple enough and you can work it out yourself.

When your home is an exempted asset, and you can live on Sydney Harbour and be on the Age pension, and perhaps that will be enough to pay for the land tax (but that is another story), as soon as you use your exempted asset to purchase a non exempted asset, all your combined asset are now taken into account.

For example: If you have your own home paid off, it is worth $300,000, and you purchase an IP for $240,000 using your home equity as security, Centrelink will apply this formula.
Mortgage $250,000
IP Value $240,000
Home Value $300,000

250,000
_______________ x 240,000 = 111,111
300,000+240,000

This means that the mortgage of 250,000 will be considered only 111,111 so your assessable asset is now 240,000 – 111,111 = 128,889

In this case it would be advisable to take a loan against the home for 20% of 240,000 = 48,000 + 10,000 for stamp duty and other expenses = $58,000 and take a stand-alone mortgage (not linked to the family home) for the rest. By doing so your assessable asset will only be $58,000

May God bless you
and prosper you.
Marc