Ask An Adviser - My Dad Is Selling Me His House At Half Its Market Value, Will This Affect His Pension? (4)

Top answer provided by:

Stevie-Jade Turner

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Hi Kate,

Thanks for such a great question. For a social security recipient like your Dad, any change to their situation could affect their benefits, so it is important to understand this before decisions are made and any actions are taken.

Social Security recipients are subject to both an Income Test and an Assets Test, to determine the benefit amount they are entitled to receive. For the purposes of answering your questions, I will make an assumption that your Dad is currently single, but it’s important to understand that there are different thresholds for the Income and Assets Test depending on whether you are single or in a couple (couples have higher thresholds).

If your Dad is currently receiving the full age pension, that means his current assessable Assets are less than $268,000 (see Services Australia's Assets test here) and that his assessable Income is also under $178 per fortnight (see Income test for Pensions here).

The way the Income and Assets tests work is that the outcome that results in the lower benefit payment is the test that applies, so you will tend to be either Income Test limited, or Asset Test limited if you are only receiving a partial benefit. If you receive the full age pension, then you will be passing both test thresholds, but you will still be closer to triggering one test more than the other.

For example, if we isolate the assets test implications of this property sale, we could assume your father has $195,000 worth of current assessable assets in order to be safely under both test threshold maximums. These assets might be a combination of cash, contents, cars or superannuation (see a full list of assessable asset types here.

Then let’s assume he sells the home to you for $200,000 and receives that as cash, he will then be assessed as a Non-Home owner, however, his assessable assets are not $395,000 as you might assume, they are actually $615,000 (see what gifts we include and assets test here)

This is because your dad has not been given adequate consideration for the asset transfer in the eyes of Services Australia and they assess the difference of $230,000 as a gift. There are gifting provisions for age pension recipients, limiting their gifts to be no more than $10,000 in a given year (which is why only $220,000 of the gift is assessable) and no more than $30,000 in a 5-year period. This will be counted against the income and assets tests for your Dad for a 5-year period and based on my assumptions so far would likely decrease your Dad’s pension significantly to become a part-pension for a 5-year-period being assets test limited during this time, before then becoming income test limited once the gift is no longer assessed against your father. For the purposes of the income test, I have assumed that all assessable assets are deemed at the current rates applicable to a Single Age Pensioner.

There may be more going on here that should also be considered, such as if your Dad might be going into care, which might have sparked this conversation to begin with. I hope this at least gives you enough of a starting point to understand the implications as well as some referenced website information on those asset and income test thresholds mentioned to help in your considerations before any transactions occur.

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:

Stevie-Jade Turner

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