Question 1

Hi Craig, I am 64 and own a unit (~$650k with $80K mortgage). I have just moved in with my son and have rented the unit out, giving a net return of about $350. I am living off that and drawing off a small savings account and will be drawing off a super account of $80K. My question please: In 2.5 years’ time when I am eligible to get an age pension – am I better off to sell the unit and put as much as I can into my super (I believe an initial $300K) and the rest in the bank – which would be about $270K after paying out the mortgage, or continuing to rent it out as an investment property? How would Centrelink look at those options to give me the best pension? Thanks, M

Hi M,

Once you turn age pension age Centrelink would treat the assets as follows:

Superannuation, superannuation income streams and savings accounts.

These are treated all the same.

Centrelink Asset test = The current account balance

Centrelink Income test = They are ‘deemed’ to earn a pre-determined return. The deeming rates have been frozen since July 1, 2022 and currently they assume you only earn a very small income.

For a single person it is assumed 0.25 per cent per annum for the first $62,600. And 2.25 per cent per annum on the balance over that. Your actual return on these investments is ignored.

Investment property

Centrelink Asset test = Net market value of the property (less outstanding loan)

Centrelink Income test = Net income received from an investment property is assessed under the income test.

Generally, the rules for assessing income from real estate are the same as the tax rules and the latest tax return is used.

However, some items that are deductible for tax purposes are not deductible for social security purposes.

These include:

Capital depreciation and development costs
Borrowing costs (eg. bank fees and charges)
Offsetting of losses between rental properties.
Whether you hang onto the property or contribute the funds to super should be based on multiple factors, including:

Growth and net rent of the property versus superannuation returns
How hands-on you want to be with a property
Whether you will need access to some of the funds tied up in the property down the track
Tax implications
Age pension treatment
Personal preferences.

You should consider seeking personal financial advice over your situation.

Question 2

I am 68 with no debts and no savings. I have $680,000 in super and so do not qualify for any aged pension. I have a commonwealth Seniors Health Care Card. What is the best way to qualify for a part pension?

The asset test threshold amount is always being indexed, so it’s important to review this figure.

As of July 1, 2024, for a single home owner, if your assets are below $686,250, you then become eligible for a part age pension. So you may already qualify.

When people ask, ‘what is the best way to qualify’, it’s important to know what the motivations are.

Just spending money on things you don’t need or enjoy, just to become eligible, makes little financial sense.

However, spending some of your super on items you do need, or enjoyable experiences does make sense.

If you do this most people will become eligible at some point, unless you have a very large super balance.

In large part it depends on whether you are spending down your super or is the balance still growing?

Apart from spending money, you could purchase a funeral bond for up to $15,500, which then goes toward your eventual funeral costs and is not asset tested.

If you purchase a Lifetime Pension or Annuity, then only 60 per cent of the purchase price is counted under the asset test. For example, if you purchased a Lifetime Annuity for $100,000, only $60,000 is asset tested, immediately reducing your assets by $40,000.

Again, I would not suggest purchasing one of these unless it meets your overall goals and objectives, not just to receive some age pension.

Importantly, you lose access to these funds so it’s important you don’t lock up too much into one of these products.

However, they do provide income for life so are suitable for many people.

Given the recent increase in allowable assets, I suggest you contact Centrelink to see if you are now eligible.

Question 3

I am 70 and my wife 68 and we both are retired. We are not eligible for the aged pension. We have owned the house we live in for 20 years and have owned a home unit for 15 years. We wish to sell our home and I assume it would be capital gains exempt. We would then shift to the unit. How long do we have to occupy the unit before it would be CGT exempt.

You can only have one principal place of residence.

You are correct in that if you sold your current principal home, it is exempt from CGT.

You can move into your unit and treat it as your main residence, and a partial exemption should be available.

The portion of the capital gain which is taxable would be based on what percentage of ownership time the home was not your principal place of residence.

For example, if you owned the unit for 20 years and it was not your main residence for 15 of those years, then 75 per cent of the gain (i.e. as it was not your main residence for 75 per cent of the time) would be taxable.

There are some complexities around this, so I strongly recommend receiving personalised tax advice.

Craig Sankey is a licensed financial adviser and head of Technical Services and 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.