Changes to pension tests for downsizers

Your entitlement to an income support payment may be bolstered by changes to the assets and income tests. The changes were included as part of the October 2022 Federal Budget and relate to exemptions from the sale of your family home.

These changes will require legislative amendment that goes through the parliamentary process. As such, we will keep you informed of these developments when they happen.

Extending the assets test exemption

Your home, or principal residence, is exempt from the assets test for social security purposes. If you sell your principal residence, you must declare how much of the proceeds you intend to use to buy a new home.

The balance of money left over after you complete both the sale and purchase of a new home is an asset which is included in eligibility tests for income support payments.

Currently, the proceeds from the sale of your principal home to be used to purchase or build a new home is disregarded from the assets test for 12 months. The announced legislative change will extend this from 12 months to 2 years, allowing you more time to purchase a new home, or rebuild/renovate your new home to your requirements.

Lowering the deeming rate

Another test that you are required to pass for social security payments is the income test. This test includes deemed income from financial assets, which currently will include money set aside for your new family home.

The upcoming change in legislation will ensure that this money, which comes from the sale proceeds of your principal home, is deemed at the lower rate (0.25% pa) for the income test. This will allow these proceeds to stay in your bank account without major income test penalties, which ultimately could reduce your entitlement to zero.

This change will apply for 24 months after the sale of your principal home.

Implications of new rules

These new rules, when put together, will provide you with greater flexibility in the future when you decide to sell your family home. This flexibility can allow you to decide the most appropriate course of action for your circumstances without worrying about whether you will lose any income support or associated entitlements.

The extension of time may also come in handy if you choose to purchase a new home that requires a series of renovations according to your personal needs.