Ask An Adviser - My Dad Is Selling Me His House At Half Its Market Value, Will This Affect His Pension? (2)

Top answer provided by:

Eric Walters

Thanks for this question Kate.  

Unfortunately, presuming that Centrelink is aware that the home has a valuation as mentioned by you, your Dad may well experience a loss of some of his pension amount in this situation.  Whether or not that will have an actual effect will depend on what level of other assets and income he has.

The difference between the actual value and the price paid for it will be treated by Centrelink as a gift from him to you.  This impact will affect his pension entitlements for a period of five years.

Recipients of Centrelink benefits and allowances can make gifts of amounts not exceeding $10,000 per annum in the aggregate (that is the gifts in total to anybody, family or otherwise, for the year); and not to exceed $30,000 in any five-year period.  The extent to which the gift exceeds the permitted amount will be treated as an asset of the ‘pensioner’, so that in year 1, the asset value will be $200,000 less the allowed $10,000 – i.e., $220,000; in year 2, the asset value will be further reduced by that year’s allowable amount, to $210,000; and for years 3 through 5, the asset calculation will include the remaining $200,000 of the gifted amount.

To make matters worse, the gifted amount in excess of the allowable disposable amount is deemed to earn an income, and rates that are deemed to be earned are prescribed from time to time (calculated a bit like interest on a bank account – only at a higher rate than your Dad could probably get at a Bank).  Depending on whether he has any other sources of income, this may or may not impact his pension entitlement calculation.

You mention that your Dad is currently on a full Age Pension.  As a homeowner, he is entitled to have assets of up to $268,000 to be eligible for that level of pension: there is a different level of entitlement for a non-homeowner and so in the absence of two key pieces of information, namely:

1. What level of assets he currently has; and
2. Will he be a homeowner after receiving the money you pay him (for instance, taking up a placement in an Aged Care facility?

the calculation of the amount of any impact cannot be readily calculated.

You can find the ranges that apply under the Assets Test on this Centrelink website page. 

You will no doubt be aware that there is a ‘lowest eligibility test’ applied in determining the level of the Age Pension entitlement so that the pension amount is assessed both by the Income Test and the Assets Test, with the amount paid being the lowest amount eligible under either of those tests.

Whilst it is not part of your question, you might also be presenting an opportunity for the Revenue collection people in your State to impose a fine on you if the Stamp Duty paid on the Contract of Purchase from your Dad is stamped at a value less than prevailing market values.

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.

Article by:

Eric Walters

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