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.
Under the assets test, the proceeds of the sale of your home that you intend to use to purchase or build a new home will have an exemption period 2 years (previously it was 1 year). For people with extenuating circumstances this exemption can be extended by an additional year, taking the maximum exemption period to 3 years.
Under the income test, prior to 1 January 2023, the money that was going to be used for your new home was included together with your other financial assets. Income was then assessed on the combined total using the deeming rates, currently they are 0.25 per cent for the first $60,400 (single) $100,200 (couple) and 2.25 per cent on the 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 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.
The $650,000 that you are going to use to buy your new home would be an exempt asset for 2 years and the deemed income would be $1,625 per year. The $150,000 that is not going to used to buy your new home would be added to your other investments, giving you $250,000 in total. The deemed income on these would be $4,417. The result would be a small reduction in your pension of around $14 per fortnight ($364 per year).
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 companion website is there to guide your downsizing journey with great information, tools and easy-to-use resources.
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.