Answer: The short answer is 2 years, maybe 3.
Late in 2022 the Social Services and Other Legislation Amendment (Incentivising Pensioners to Downsize) Act 2022, made a number of significant changes to the way the proceeds of your home are treated for calculating your pension while you are waiting to buy or build your new home. The changes affect both the assets and income test assessments and apply to people who have sold their home since 1 January 2023.
The Assets Test
Historically, the assets test allowed for a one-year exemption on the home sale proceeds intended for the purchase or construction of a new property. However, with the 2022 amendments, this exemption period now spans 2 years. Furthermore, for those facing unusual circumstances, this can be lengthened by another year, thus potentially totalling 3 years.
The Income Test
Before 1 January 2023, the income test combined the funds designated for your new home with your other financial assets. Income was then ascertained on this amalgamated sum using the deeming rates: currently 0.25 per cent for the initial $60,400 (for singles) or $100,200 (for couples), and 2.25 per cent on any assets above.
For people who have sold their home since 1 January this year only the lower deeming rate (0.25 per cent) applies to the proceeds that will be used for your new home.
Let’s look at an example
Let’s say you are a full pensioner selling your home for $800,000 and using $650,000 to buy your new home, you have $100,000 of investments (before selling) and $10,000 in personal assets.
In such a case, the $650,000 allocated for the new home becomes an exempt asset for 2 years, attracting a deemed income of $1,625 annually. The remaining $150,000, not going to be used to buy your new home, would be added to your other investments, giving you a total of $250,000. The deemed income accrued from this would be $4,417. This might result in a slight dip in your pension, approximating $14 every fortnight (or $364 annually).
Compare that to if you sold your home in December 2022 where the $650,000 you are going to use to buy your new home would be exempt for 12 months from the asset test and the deemed income would be $14,625 per year, causing a reduction in pension of almost $6,900 per year. After 12 months the $650,000 would be assessed as an asset and the pension would be lost.
Rachel Lane is author of Downsizing Made Simple with fellow finance expert Noel Whittaker, the new edition is now available to pre-order online. The Downsizing Made Simple website is here to guide your downsizing journey with great information, tools and easy-to-use resources.
The original article was published on the Starts@60 website.
