Selling Your Home? Here’s How It Affects Your Age Pension (The 24-Month Rule)

With today’s property prices, selling your family home to downsize often results in a significant cash windfall—sometimes hundreds of thousands, or even millions of dollars, landing in your bank account.

For Age Pensioners, this raises a terrifying question: Will this sudden increase in cash cut off my pension?

Ordinarily, a large sum of cash is treated as a financial asset, which would drastically reduce your payments. However, Centrelink has specific rules for the "transition period" between selling one home and buying another.

In this guide, we break down the Principal Home Sale Proceeds Exemption, how your money is "deemed" while it sits in the bank, and whether you can claim Rent Assistance while you wait to move.

The Golden Rule: The Principal Home Sale Proceeds Exemption

Centrelink understands that you shouldn't be penalized simply for moving house. To protect pensioners, they offer a concession known as the Principal Home Sale Proceeds Exemption.

The Rule in Plain English: If you sell your principal home, the portion of the money you intend to use to buy, build, rebuild, repair, or renovate your new home is exempt from the Assets Test for up to 24 months.

How It Works (A Real-Life Example)

Let’s say you sell your current home for $1.5 million. You plan to downsize and spend $1.2 million on your next home.

Here is how Centrelink assesses that money while it sits in your bank account:

• The Intended Amount ($1.2M): This amount is exempt from the Assets Test during the exemption period because you intend to spend it on a home.
• The Surplus ($300k): The remaining $300,000 that you don't intend to spend on the house is treated as a standard financial asset immediately. It will count toward your Assets Test.

Note: The exemption is capped at the sale price. If you sold for $1.5M but plan to buy for $1.8M, only the $1.5M is exempt.

The Income Test: Understanding "Deeming" Rates

While the intended funds are exempt from the Assets Test, they are treated differently under the Income Test via deeming.

• The Intended Amount: The money set aside for the new home ($1.2M in our example) is deemed at the lower deeming rate (currently 0.25% as of standard rates).
• The Surplus Amount: The extra cash ($300k) is deemed under standard rules, using a mix of the lower and higher rates based on your total wealth.

Crucial Detail: The money intended for your home is assessed separately. It does not "use up" the lower deeming threshold for your other savings. You still get your full lower deeming threshold applied to your other financial assets.

Am I a Homeowner or Non-Homeowner?

This is a common point of confusion. When you have sold your house but haven't bought the new one yet, what are you?

The Status: During the exemption period, you are still assessed as a Homeowner.

The Consequence: Because you are a homeowner, the lower asset thresholds apply to you. This makes sense because the cash for your new house is already being hidden from the assets test.

The Bonus (Rent Assistance): Normally, homeowners cannot get Rent Assistance. However, during this transition period, if you are renting while waiting to buy/build your new place, Rent Assistance may be payable.

• You must pay a minimum amount of rent to qualify.
• For every $1 of rent above the threshold, you get $0.75 back (up to the maximum limit).

The "Intention" Factor: What If Plans Change?

The entire exemption relies on your intention.

• Do I need proof upfront? No. You declare your intention to Centrelink within 14 days of settlement. It is self-assessed, not pre-approved.
• What if I spend less? If you intended to spend $1.2M but found a bargain for $1M, that is generally fine provided your original intention was genuine. Centrelink usually won't claw back payments.
• What if I decide not to buy? If your intention changes and you decide not to buy a new home, you must notify Centrelink within 14 days. The exemption will stop, and the funds will be assessed as assets.

How Long Does the Exemption Last?

The exemption period starts on the settlement date of your former home.

• Standard Period: It lasts for 12 months initially and can be extended to 24 months automatically if you are still looking or building.
• Extended Period (Up to 36 Months): In special circumstances, this can be extended to 36 months.

To get the 36-month extension, you must meet specific criteria like experiencing delays beyond your control (e.g., builder shortages, natural disasters).

Summary

Selling your home doesn't have to mean losing your pension, provided you understand the rules.

1. Notify Centrelink within 14 days of settlement.
2. Declare the amount you intend to spend on the new home (this part is exempt from the assets test).
3. Enjoy the lower deeming rate on those funds.
4. Apply for Rent Assistance if you are renting in the meantime.

Disclaimer: This article provides general information only. Centrelink rules and deeming rates are subject to change. Always check the latest figures on the Services Australia website or seek professional financial advice.