Help! How do you keep the Age Pension when you sell your house?

Q: “We sold our home 2 years ago but because we had only owned it for 3 years, we had to include the funds as an asset. These funds are currently in a bank account paying us interest but stop us from getting a part pension. We have a self-managed super fund, so we are wondering if we should put the funds in that and then try for a part pension?”

A: It seems that not surprisingly, you may have mixed up the complicated Centrelink exemption rules with the equally complicated superannuation contribution and down-sizer rules.

As far as Centrelink is concerned, there is a special asset-test exemption for the proceeds of your primary home for two years, provided the proceeds are intended to be used for the purchase or construction of a new home.

To qualify for this exemption, the proceeds must be designated as being for the purpose of your new home. In some circumstances such as a building delay, that exemption can be extended for a further 12 month period.

Up until January this year, the standard exemption period was for 12 months with a possible 12 month extension but homes sold after this date have up to 24 months with a possible 12 month extension. There is no minimum time period that you must have lived in your home for this exemption to apply.

The rule surrounding minimum occupancy applies to people wanting to make use of the once-off $300,000 superannuation downsizer contribution. This rule allows people who sell their primary dwelling to make a contribution of up to $300,000 each to super. A couple for example, could deposit $300,000 each or $600,000 in total.

To qualify, you must have lived in the property for more than 10 years, be over the age of 55 and deposit the funds into super within 90 days of settlement. Importantly, super down sizer has no upper age limit and does not count towards the normal contribution caps.

Depositing into super will only help if you are under the Age Pension age and the funds are held in accumulation phase. Once you reach pension age, the funds will be included in the asset test and deemed under the income test.

Under the circumstances, you could go back to Centrelink and explain the problem if you were advised incorrectly by Centrelink. Hopefully, they might re-classify the proceeds and possibly, back-pay missed pension, but I suspect your chances of success are slim.

For the benefit of other readers, if you intend to use the full proceeds of your home sale for your new home, the full amount would be exempt under the asset test and the lower deeming rate of just 0.25 per cent per annum will apply for the income test.

Be aware that this lower deeming rate is frozen until next year and you should expect a sharp increase in the deeming rates from July 1, 2024.

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IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.