How living in a multi-generational home can impact your Age Pension

When your kids left home you probably responded in one of two ways; either you were extremely excited at having the place to yourself again or were heartbroken to see them go. So, for some parents, it could be a blessing that nowadays a growing number of young adults are returning to the family home and living under the same roof as their parents once again.

For some it is just a temporary measure as they build their own home, save for a deposit or transition between rental properties, but others spend years living with mum and dad. It can be a win-win situation, giving parents the chance to boost their retirement income, while kids save money and perhaps get some free child-care if they have children of their own.

But before you extend an invite to your children or another member of the family to house share, there are some things you should know, especially if you are currently receiving the Age Pension or have plans to in the near future. As, whether you have a granny flat in the backyard you are looking to rent out, a section of the house or just a room, it’s essential you abide by the Centrelink rules to avoid missing out on those fortnightly government payments.

Understanding the income test

Before you receive the Age Pension, Centrelink will undertake an income test, which essentially involves assessing how financially stable you are and what amount of government support you are entitled to. As detailed by the Department of Human Services, funds are referred to as income if it is derived or received for your own benefit, is a source of profit or is a form of regular payment you get as a gift or allowance. So, it doesn’t have to be money as such.

If you’re still working, income can include everything from wages and bonuses to penalty rates and even amounts you salary sacrifice into super. But for those of you who have entered retirement, Centrelink will assess things like income from a sole trader or partnership business and real estate income from things like rental properties or boarders and lodgers.

There is a limit to how much income one can receive before it begins to affect the Age Pension, so the more you earn, the lower the welfare allowance. For a single person in Australia, if your income per fortnight is over $174, the Age Pension allowance will be lowered by 40 cents for each dollar above that amount. Whereas, for couples the same decrease in welfare payments will occur when the income reaches over $308 a fortnight.

The exemption

It all may seem a bit doom and gloom if you rely on the Age Pension to get by, but fear not, as there are some exemptions under the income category and it has to do with family members. According to the Age Pension income assessment criteria, ‘regular payments from a close relative’ (parent, child or sibling) are classed as exemptions.

This means if your child is living at home and paying you rent, it isn’t classed as income and therefore, doesn’t affect how much payment you receive from the government. Things are a little more difficult if you are helping say a cousin or niece as they are not a ‘close relative’ as defined by Centrelink and the amount they pay you for rent will be assessed.

What about granny flats?

Another option for parents wanting to lend a helping hand to their kids is to build a granny flat in the backyard. This will provide a bit more privacy for everyone and it wouldn’t affect your Age Pension allowance.

As well as the income test, Centrelink will undertake an assets test which looks specifically at property or items that are owned by yourself or a partner in full or part, or have an interest in. However, the government provides an exemption for your “principal home and two acres of land”, meaning granny flats are perfectly acceptable in the majority of cases.

As with the income test, Centrelink will take into consideration who is living in the granny flat so if it is your child, parent or sibling then that is perfectly fine, but for anyone outside of your immediate family it would be included as an asset.

And, of course, if you own another house and are renting that out completely, then that would be classed an asset and could lead to a deduction in your fortnightly payments.

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.