‘Will my $35K inheritance be taxed and how will it affect my Age Pension?’

Q. I will soon receive approximately $35,000 from an inheritance. I am on a full Age Pension so obviously I have to declare this inheritance to Centrelink. Will it affect my pension at all and if so, for how long? Also, will it be classed as income and then be taxable?

A. Let’s look at tax first. Your inheritance will be tax-free, and you won’t have to report it to the Australian Taxation Office. And despite some of the rumours floating around before the last federal election, neither side of politics is planning to introduce death or inheritances taxes any time soon.

When it comes to your Age Pension, the situation isn’t as clear cut though.

Yes, as you assumed, you will need to report your inheritance to Centrelink, and no, it won’t be treated as income. If the Age Pension is your only source of income and you don’t have any other substantial assets, then your pension may not be affected at all. But once you receive your inheritance, your pension will be reassessed under both the income and the assets tests.

The full value of the inheritance ($35,000) will be counted as an asset, and added to your other assets for the purpose of calculating your rate of pension. If you’re currently getting a full pension, your assets would be below the relevant limit in the table below.

Your home isn’t counted as an asset but nearly everything else is – your car, household contents, investments and superannuation. If the total of your assets after receiving the inheritance exceeds those limits, then your pension will be reduced (but certainly not cancelled).

Assuming you put the money in the bank or invest it, then the full $35,000 will be also be subject to the ‘deeming’ rules for the purpose of the income test. You can receive a certain level of income before your pension is affected, and as long as you stay within those limits, your pension won’t be reduced.

Centrelink should be able to easily clarify how much impact (if any) there will be for you.

If you have a question for Starts at 60’s money experts, email it to [email protected].

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.