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

Top answer provided by:

Dishna Wijenayake

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Hi Kate,

Yes, this may impact your dad's asset test and income test position for the aged pension. At this stage, the property is an exempt asset for Centrelink purposes as this is his primary residence.

The market value of this property is $430,000, he is selling it to you for $200,000. When an asset is sold for an amount less than its market value the difference is classified as a gift by Centrelink. Gifting rules will apply as shown below.

What is gifting?

Giving away assets or selling them at less than market value is classified as gifting by Centrelink. These gifts can be given to anybody including family, friends, charities, or religious organisations.

Actions that are not considered gifting include Transferring funds/assets between members of a couple and paying off a loan. Further, a different set of rules apply to granny flat arrangements and special disability trusts.

Gifting Limits

The maximum amount a person can gift without impacting their Centrelink payments;
 - $10,000 in one financial year
 - Cannot exceed $30,000 over 5 financial years

Anything gifted above these amounts will be classified as a deprived asset. This will count towards the asset test and deemed interest will be assessed for 5 years after the gifting date.

Your dad is selling the property to you for less than market value. The difference is $230,000. Therefore, this $230,000 will be classified as a gift. The maximum amount allowed under gifting rules is $10,000 in one financial year.

Therefore, in this case, $220,000 will be classified as a deprived asset by Centrelink. This amount will be assessed as an asset and will be subject to deeming for 5 years from the date of the gift.

The above will apply even if asset gifted (in this case your dad’s primary residence) is ordinarily exempt under the asset test.

I have noted a few points below that might be useful.

Selling the family home

1. If sale proceeds are used to purchase/renovate or build a new home, these funds will be disregarded under the asset test for 12 months from the date contracts were exchanged.
2. In certain circumstances, this exemption can be extended to 24 months
3. If building a new home, land will be exempt for 12 months of construction as long as it’s value is less than sale proceeds.
4. Although this amount is exempt under the asset test, it is deemed as a financial investment and income will be assessed under the income test.

In order to understand the full impact on your dad's age pension, asset and income test calculations would have to be done. Therefore, I would recommend speaking to a financial adviser or Centrelink Financial Information Service (FIS) officer before proceeding with this sale.

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:

Dishna Wijenayake

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