I want to purchase this house for 145K in the names of my 2 sons who would have the equity and I would receive the rent. I am currently on an age pension and would like to be aware of the ramifications please.
Leonie in Melbourne
Top answer provided by:
Centrelink assess your age pension under both an income test and an assets test, and then pay you under which ever test provides you the least.
Unless you establish a formal loan from you to your sons, the $145,000 would be considered as a gift as the funds for the deposit are being moved from your control to another party.
As only $10,000 can be gifted each year for three years (over a five-year rolling period), the full $145,000 would be assessed under both the income test and the assets test for five years before being exempt as you have gone over the gifting limit. The reduction to the pension would range from $0 to $435 per fortnight depending on your personal circumstances for five years.
The income that you receive from the property will be counted toward the income test as it is a regular entitlement even if you consider it a gift from your sons. An ad hoc lump sum given to you as a once off is not assessed as income. Loan repayments are not assessed under the income test as it is a return of capital to you from your sons. Keep in mind the loan amount is still assessed under the income and assets test.
You would need the rent to offset the reduction to your age pension to make sure there are no cash flow issues with the proposal. The age pension is virtually a risk-free source of income where as rental income is as only secure as the quality of the tenant and property location. What if your sons go through divorce or financial difficulties and you lose some or all the rental income.
Leonie, I recommend you seek personal advice as the outcome could be quite severe over the long term, or rather positive beyond the five-year mark depending on your individual personal circumstances. Being an important decision, you should seek advice so you can make an informed decision.
Things you should know: In preparing this material, no account was taken of the objectives, financial situation and needs of any particular person. Before making a decision on the basis of this material, you need to consider, with or without the assistance of a financial adviser, whether the material is appropriate in light of your individual needs and circumstances.
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.