Investment Property & Your Age Pension: What You Need to Know

Owning an investment property can be a great way to build wealth, but if you're nearing retirement, you might be wondering how it impacts your Age Pension entitlements. This comprehensive guide will break down exactly how Centrelink assesses your investment property under both the assets test and the income test, and what that means for your Age Pension.

Age Pension Basics: Means Testing Explained

To qualify for the Age Pension, you must meet age and residency requirements. After that, your entitlement comes down to means testing, which involves two separate assessments:

• The Assets Test: Looks at the value of your assets.
• The Income Test: Assesses the income you receive.

Centrelink applies both tests independently, and the one that results in the lower pension payment is the one that determines your entitlement. These thresholds are critical, and an investment property can be a significant factor.

What Counts as an Investment Property for Centrelink?

For Age Pension purposes, your principal residence is generally exempt from means testing. An investment property, however, is any other real estate you (or your partner) own or have an interest in, regardless of whether it generates income.

This includes:

• Rental properties
• Holiday homes
• Properties you allow others to live in for free
• Vacant land or bush blocks
• Commercial properties
• Hobby farms

Important: This applies to properties located both in Australia and overseas.

How Your Investment Property is Assessed Under the Assets Test

Under the assets test, Centrelink includes your equity in the property. This is calculated as the property's current market value minus any relevant debt secured against it.

1. Current Market Value

This is what your property would likely sell for today, not what you paid for it or its council valuation. When you apply, you can provide an estimate. Centrelink will compare this to their own data, and if there's a significant difference, they may arrange a professional valuation at no cost to you.

Centrelink regularly updates property values based on local market conditions using third-party valuation services. If you disagree with their assessment (e.g., due to specific damage not reflected in general market data), you can request a review.

2. Relevant Debts

Loans secured directly against your investment property are considered relevant debts and are deducted from its market value. Unsecured loans specifically obtained to purchase an investment property can also be deducted if you provide evidence.

⚠️ Common Trap: Loans Secured Against Your Home Equity!
If you take out a loan secured against your principal residence (your home equity) to buy an investment property, Centrelink will NOT count that loan as a relevant debt. This means the full market value of your investment property will be assessed, potentially inflating your assessable assets and reducing your pension. While this strategy might make sense for tax purposes, it can be detrimental to your Age Pension. Consider refinancing to secure the loan directly against the investment property if this applies to you.

How Your Investment Property is Assessed Under the Income Test

Under the income test, Centrelink assesses the net rental income from your investment property. This is calculated as your gross rent minus allowable expenses.

Allowable Expenses include:

• Council rates
• Water rates
• Property management fees
• Insurance
• Repairs and maintenance
• Loan interest (even if the mortgage is secured against another property, like your principal residence, as long as the loan was used to purchase the investment property – this differs from the assets test rules!).

What Centrelink DOES NOT Allow as Expenses:

• Capital depreciation
• Special building write-offs
• Cost to build
• Loan establishment fees

Important Notes: If your net income is a negative amount (a loss), your assessable rental income is simply zero. Losses from one property cannot offset income from other sources. When you apply, Centrelink will ask for your tax return or a rental profit/loss statement. For new properties, Centrelink may deduct one-third of the rental income to account for expenses, plus actual loan interest, until proper documentation is available.