The Principal Home, and Rent Assistance
There is often confusion about whether the family home is assessed as an asset when working out the age pension or other government entitlements. The other less discussed issue is rent assistance. Did you know you can get rent assistance on retirement village site fees, yacht mooring fees and camper van site fees? We discuss these issues further:
The family home is not taken into account when determining a person’s age pension entitlements. There was some media commentary prior to election time as to whether the family home should form part of the assets test, however both sides of government have not ventured down this path, and may never.
There are some matters to consider however: Under the current Social Security Act: “The principal home is generally the home in which the single income support recipient or couple lives for the greatest amount of time each year. The principal home includes an area of adjacent land (5 acres) on the same title document”.
Interestingly, if you have retired and decide to sell your home and purchase a yacht to sail around the world, or to just live on, this is your principal place of residence and therefore is an exempt asset.
The plus is that depending on the mooring fees, you may also be eligible for rent assistance, but only if you are in receipt of a commonwealth government pension, allowance or benefit.
The same principal applies if you buy a motorhome to travel around Australia and essentially live in, after selling your house. The motorhome becomes your principal place of residence and is an exempt asset.
You may also be eligible for rent assistance depending on the site fees that you pay. This can also apply to retirement villages where there are ongoing site fees.
What is Rent?
Rent is defined as the amount payable at regular intervals by a person as a condition of occupying their principal place of residence. Rent includes:
Rent for private accommodation
Site fees for caravans, manufactured and relocated houses
Site fees to moor a boat
Board or lodging fees
Services and fees for non-government funded retirement villages, nursing homes and aged care facilities.
For those retirees who happen to own two properties and live in both at various times of the year, both homes cannot be classified as your ‘principal place of residence’ but you can nominate the most expensive property as your home, therefore exempting it from the assets test.
If your home happens to sit on two blocks of land, in other words two titles, provided your home straddles both titles, the second block of land is not assessable.
However the ‘Extended Land Use Test’ will allow a person who has resided for over 20 years on a larger property, where the adjacent land is greater than 5 acres and they are making effective use of the land (e.g. farming it) to have the value of this land exempt from the assets test.
These arrangements can get quite complex.
The exemption of a person’s home under the assets test is an attractive strategy for some people who think “If I spend more money on the home and build another room, I’ll get more pension”.
Fair enough in a lot of cases, however some people who do take this road (just to get a hike in pension) inevitably find that after a couple of years the costs associated with owning a larger more expensive home, including rates, energy and maintenance, are not sustainable on an age pension.
If you wish to upgrade the property to maintain its appearance and value and perhaps get a better sale price, that can be a valid strategy….or even a necessity. But to spend money just to get more pension doesn’t always work out that well.
If you have any further questions on these issues and may wonder how you can benefit by getting this right for your circumstances, give us a call on 07 4639 1399.