“How would Centrelink treat share trading gains for a person receiving an Age Pension and actively trading shares short term?"
- Question from Richard in Sydney, NSW
Top answer provided by:
Mark Smith
Hi Richard,
Navigating the Centrelink means tests can be a daunting experience for many older Australians. Unfortunately, there is never a simple answer when it comes to the assessment of income, assets and the changes that can affect your entitlements. Let’s look at the key points to help answer your question.
Age Pension Means Tests
There is two means tests Services Australia use to calculate Age Pension entitlement:
1. The Income Test assesses all of you and your partner's income from all sources, including financial assets such as shares, superannuation, bank accounts, etc. There are income thresholds applying to Age Pension under the income test. If your fortnightly income is over the threshold, your pension will be reduced by $0.50 for each dollar you are over. You can see the threshold here Services Australia Income Test for pensions.
2. The Asset Test assesses all assets (apart from your own home), including financial assets, vehicles, investment property, etc. There are thresholds applying to Age Pension under the asset test. If you exceed the lower threshold, your Age Pension will reduce by $3 per fortnight for every $1,000 you are above the lower threshold. If you are above the maximum threshold, your Age Pension entitlement will be nil. You can see the thresholds here Services Australia Assets test for pensions.
The amount of Age Pension you receive will be based on the test that results in the lowest amount of entitlement. For example, you may qualify for full Age Pension under the income test but only a part pension under the asset test. You will receive the part pension as a result.
Shares and Centrelink Means Testing
Income test - Under the income test, shares are deemed a financial asset while you own them. This means that Centrelink apply a flat earning rate to your shares, regardless of the actual dividend income they may pay. The deeming rate is calculated based on two rates. The lower rate (0.25%pa) applies to the deemed asset value below the threshold. The value of deemed assets above the deeming threshold are assessed at 2.25%pa. You can see the deeming thresholds here Services Australia Deeming.
While you own your shares, they will be a deemed asset under the income test. Let’s assume that you are above the deeming threshold and own shares worth $100,000. Centrelink will apply the deeming rate of 2.25% ($2,250pa) and apply that to the income test to determine your entitlement. It is important to note here that capital gains made from selling your shares are not counted as assessable income under the income test.
Asset Test – Under the asset test, shares are assessed at their market value. Centrelink receive data in March and September each year from share registries and update the market value for asset test purposes. However, you are expected to provide your own updates on material changes to your shareholdings (including any off-market holdings) to ensure continuous accurate assessment of your entitlements. This means that when you sell shares and the funds are paid to your bank account, you are required to update Centrelink to advise of the disposal of shares and new bank account balance within 14 days (if the value of the asset change is greater than $1,000). The same is true if you sell shares and buy new shares on the same day. Refer to Services Australia - Change in circumstances when you get age pension.
Worked Example
Assumptions:
-Single Pensioner
-Value of Non-Financial Assets - $15,000
-Bank Account funds - $20,000
-Shares - $200,000
-Super Pension (deemed) - $200,000
Income Test Pension Payable = $24,998pa
Asset Test Pension Payable = $14,599pa (lower value is the actual entitlement)
Assume your shares have grown in value to $250,000 and you have not yet updated Centrelink. You sell $50,000 of shares and invest $30,000 into new shares and $20,000 to bank account. (Profit from shares is irrelevant for income test purposes). You would be updating Centrelink of the new values as follows:
-Value of Non-Financial Assets - $15,000
-Bank Account funds - $40,000
-Shares - $230,000
-Super Pension (deemed) - $200,000
Income Test Pension Payable = $24,436pa
Asset Test Pension Payable = $10,699pa (lower value is the actual entitlement)
As you can no doubt tell, the more you grow your asset base through profitable share trading, the more your Age Pension will reduce. There are some alternatives you can explore to help reduce the affect and it is a good idea to seek professional advice if you want to maximise your Age Pension benefits.
While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.
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