Tuesday, September 6, 2016

A house in Bali and a full age pension.

“John” recently “went through” a divorce and considers that he no longer has the funds to purchase a home whilst on the age pension. John is living with his son and their family.

John and his former partner were on the full age pension and both were receiving approx. $660 pf.

This is a summary what he did following the sale of the family home.

He continues to run a small business that requires him to travel to Bali to purchase stock. He determines that the company would benefit if he “bought” a house in Bali to use when he visits. You can not own property in Bali but it will be treated as an investment property for Centrelink purposes. The property is valued at $300k.

John also has a further $200k in super.

As a single age pensioner, without assets, he would have been entitled to approx. $870pf. Now with the above assets his age pension falls to nearly the same as what he was receiving as a part of a ‘couple’ to $660pf. 

As there is no international agreement with Indonesia, John is also worried that as he no longer has the family home he may be considered a non resident. John uses the $200k in super to enable his son to renovate the house to “pay the costs associated to build a granny flat on someone else’s property or the costs to convert someone else’s property to suit your needs and establish a lifetime right to live there” https://www.humanservices.gov.au/customer/enablers/granny-flat-right-or-interest

John's age pension now rises back to the full single age pension rate – from $660 to $870pf.

Is $0.5m in super really a “small amount”?

When providing advice to a Centrelink age pensioner, a recent article in the mainstream press (7/9/16) suggested “for a relatively small amount, such as $500,000”. 

Of course “relative” can mean a number of things and is dependent upon - relative to what. So let’s look at that relativity.

First we look at what $500k in super means to a single age pensioner – as was the case for the press article. Let’s assume that this was the total amount of assets held by the age pensioner.

The age pension would be reduced from $870 to approx. $440pf for that “relatively” small amount. In 2017 that age pension is expected to be reduced by a further $7,700 pa. A weekly loss to the age pensioners 'budget' of nearly $150 per week from the current 2016 pension.

Back to judging whether that $500k is a relatively small amount.

In December 2015 the Association of Superannuation Funds of Australia Ltd(ASFA) published the report “Superannuation Account Balances by Age and Gender”

So we will pick out a stat to assist with judging that relativity. The data relates to “average superannuation balances at the time of retirement (assumed to be between 60 to 64 years of age) in 2013/2014”.

So the medians – where 50% of the population has a lesser amount – the super balances are:
            $100,000 for men
            $28,000 for women

That is, for men, 50% of the retiring population has a superannuation balance of less than $100,000. For those applying for the age pension it is presumably far lower.

Therefore, the above mentioned relatively small $500,000 is at least 5 times that of the median for all retiring males and nearly 20 times that for women!

Update 8/8/16 – since we published this article we have received a number of comments regarding the above statistics. So we should expand in an attempt to explain.

The above median super balance of $100,000 for men, and $28,000 for women, is the median balance. That is, 50% of people have amounts less than that and 50% have amounts greater than that.  Now it is the average super balance that is often reported. From the same ASFA report the “average superannuation balances at the time of retirement (assumed to be between 60 to 64 years of age) in 2013/2014 of $292,500 for men and $138,150 for women, many recent retirees will need to substantially rely on the Age Pension in their retirement.”

Much of the difference between median and average is attributed to the number of people with large super balances and those without any super.

To look at the average balance situation for a ‘household’ the ASFA report states that the “The average total superannuation balance in 2013/2014 for a household headed by a person 60 to 64 years of age was around $355,000 with a median value of $110,000.”

Monday, July 18, 2016

Reducing the impact of the 2017 Age Pension changes

Maybe you are one of the two-thirds of age pensioners who are going to have their entitlements reduced, or withdrawn, on Jan 1 2017? Some households will be up to $15,000 pa worse off. How can you supplement your income to minimise the impact?

The 2017 amendments to the age pension are primarily targeted towards ‘asset based’ age pensioners. The lowering of the asset thresholds may result in ‘earning’ additional income not in fact impacting on revised age pension entitlements.

The following is a brief summary of the issues surrounding the options being discussed by clients and ‘the web’. Of course the following is generic and is therefore primarily designed to highlight the issues. Please contact us for specific guidance.

Odd Jobs
‘John’ decides to do some odd jobs for neighbours and friends. John sets himself up as self-employed and works from a shed ‘out the back’. He expects to earn around $20,000 pa.
A few matters that he should be careful with:
  • Being self-employed, John is NOT eligible for the $6,500 pa Work Bonus Scheme(WBS). Therefore, the $20,000 would be income assessed, not $13,500 if he worked as an employee and the WBS was applicable. John could set up a company structure and pay himself a wage but many issues and costs are involved with establishing this framework.
  • Centrelink may deem that part of his home is no longer an exempt asset as it is being used for income generating purposes. Centrelink does not use the same rules as the ATO. Even if he earned less than the tax threshold, Centrelink work under different rules and may still consider the asset value of the shed. Additionally, if John were to claim tax exemptions for part of his utilities – e.g. power – it is always possible that the ATO would consider capital gains tax.

Charging Children Rent
’Julie’ is an age pensioner and has two children still as university. She expects to lose $5,000 next year with the changes to the age pension. Her children have offered to contribute towards living expenses, but they are concerned about the impacts for Centrelink and if these payments would be deemed as income.

If the situation were reversed then Centrelink may regard the $5,000 of benefits as a gift. However, receiving ‘living expenses’ from siblings is exempt from income tests. Of course if these payments were in excess of actual costs then the ‘remainder’ would ‘appear’ in revised bank balances and therefore be assessed via the normal asset testing.

Charging Board & Loadings – renting out a room.
‘Colin’ decides to compensate for the loss of an estimated $3,000 pa in age pension by renting out a room. Colin decides to charge $120 pw for the room which includes breakfast. Centrelinks default position is that 50% of that $120pw is treated as additional income (approx. $3,000 pa). The remaining 50% is assumed by Centrelink as required to cover costs such as utilities, food etc. If the costs were higher than the 50%, then a submission to Centrelink could see that 50/50 standard approach being adjusted. Colin is an asset based part pensioner so in his case the additional $3,000 does not further impact on his pension.

If Colin were to offer “accommodation, breakfast and meals” then the percentage of income that would be assessed by Centrelink would drop from 50% to 20% as again Centrelink would default to the assumption of 80% of income would be directed towards costs. Therefore, if Colin charged $240pw then only $48pw – or approx. $2,400 pa – would be assessed as income. 

For more details on this and the standard income assessment guidelines, please refer to the following link.

It is understood that Centrelink are reviewing this scenario. At this stage it could be treated in the same was as ‘renting out a room’. However, it could be seen as more of a commercial enterprise and treated in the same way as a small business/sole trader etc.

As with AirBnB – it could be seen as a business operation.

Granny Flat
Shirley and Jack give up! The reduction in age pension means they can no longer live on the age pension in 2017. They expect to have a $14,000 pa reduction in their pensions. They are considering the option of a granny flat, as their daughter has offered to renovate her house via an extension - adding a bedroom and ensuite. Shirley and Jack would then transfer the title of their house to their daughter.

Shirley approaches Centrelink to obtain a formal position in relation to the proposal. Of course, Centrelink can not make that statement without a formal agreement. Shirley does not wish to sell the house without a guarantee from Centrelink that she can use the proceeds from the sale of the house towards both the cost for the renovations to her daughter’s house and ‘life time’ living costs. Shirley however does receive an informal ‘guestimate’ from Centrelink - that being $400,000 could be treated as a “life interest or right to use certain accommodation for life”.

Centrelink rightly would “recommend that you have a legal document drawn up by a solicitor to have evidence of the arrangement. This can help to prevent problems in the future if your personal circumstances change”.

Now Shirley is still worried. Their property is worth approx. $700,000; so approx. $300,000 is above the expected $400,000 ‘life interest’ granny flat value. Therefore, the additional $300,00 may be added to her asset base and further impact on their pension. Although some of these funds could be used for the required extensions and renovations.

Shirley decides to ‘transfer’ her house to her daughter and advises Centrelink that they are looking for an alternate home, preferably a brand new home. She gets 24 months of assets exemption for the proceeds of the sale of the house. Shirley now has 24 months to decide if the granny flat is the best option, or is able to obtain an improved assessment from Centrelink.

For further information on granny flat rights or interest, refer

Monday, June 27, 2016

Income and Assets Test Updates – July 2016.

Our age pension calculator has been updated for the 1 July 2016 updates at

Income Test

Income test limits for the full Age Pension are indexed on 1 July each year and for part Age Pensions are indexed in March, July and September of each year.

Income Test – 1 July 2016
For full pension/allowance (per fortnight)
For part pension(pf) 
up to $164
less than $1911.80
Couple (combined)
up to $292
less than $2926.80
Illness separated (couple combined)
up to $288
less than $3787.60

Work Bonus SchemeThe WBS is an incentive for age pensioners to “participate in the workforce” by providing an income threshold of $6,500 pa. This threshold remains unchanged since its inception.

Asset Test

Asset Test FULL age pension– 1 July 2016
Couple (combined)
Illness separated (couple combined)
One partner eligible (combined assets)

Asset Test PART age pension– 1 July 2016
Couple (combined)
Illness separated (couple combined)
One partner eligible (combined assets)

Deeming Rates

Deeming rates from 1 July 2016
Assets Threshold
Rate of Deemed Income
$0 – $49,200
Above $49,200
Allowee Couple - per person (1)
$0 – $40,800
Above $40,800
Pensioner Couple - combined (2)
$0 – $81,600
Above $81,600