Your guide to means testing

The assets test

All assets that your client has are assessable under the assets test unless they are specifically excluded. The major non-assessable assets are:

• the principal home and curtilage of up to two hectares 
• superannuation in accumulation phase while the client is under age pension age.

But there are many others including, but not restricted to:

• proceeds from the sale of a former principal home intended to be used to purchase/build a new principal home and it is within 24 months since the sale of the former home if the home was sold after 1 January 2023, or 12 months if it was sold before 1 January 2023
• funeral bonds (up to an allowed threshold) or a pre-paid funeral
• medals of valour not held as a collectable
• Special Disability Trusts
• complying Asset Test Exempt (ATE) pensions 
• accommodation bonds in an Aged Care Facility 
• Life interests in certain circumstances.

An assessable asset is assessed at its market value. The market value is the point at which a willing purchaser and a willing, but not anxious vendor, would reach an agreement on.

There are several ways to determine the market value, depending on the type of asset¹:

• For bank accounts, the client would simply advise Centrelink of the balance. 
• For listed shares and managed investments, it is only necessary to advise the number of units or shares, as Centrelink can determine their value. 
• For real estate assets, the client should provide an honest opinion but Centrelink will obtain a professional valuation at their expense, if they consider it necessary.
• Motor vehicles and home contents - the market value is the amount the asset could be sold for – not the insured or replacement value. For example, home contents would ordinarily not be valued at more than $8,000 - $10,000. 
• For more complicated business or trust structures, Centrelink have “Complex Assessment Officers” who would make a determination based on the financial accounts etc.

The income test

Centrelink assess ordinary income when determining a person’s entitlements under the income test². Ordinary income is an amount earned, received or derived by any means from any source, and includes valuable consideration, personal earnings, monies and profits whether of a capital nature or not. However, there are a number of exceptions.

Income from salary and wages

Assessable income is the amount earned before tax plus any employer super contributions above the superannuation guarantee, and any non-grossed up fringe benefits.

Income from non-financial assets

Income from non-financial assets are assessed on a case-by-case basis. Some of the more common sources of income are dealt with in separate sections below, but Centrelink have Complex Assessment Officers that can look at individual circumstances.

Financial assets

Financial assets include: money, managed investments, listed securities, loans, bullion, amounts subject to deprivation, and annuities with a duration of 5 years or less.

Dividends from listed securities, and interest from cash deposits are not assessable income. Instead, a rate of income, whether actually received or not, is assumed (deemed) to be earned. There are two deeming rates used by Centrelink and Department of Veteran Affairs (DVA) to deem income on a person’s or a couple’s total financial assets:

• A low rate: that applies up to a threshold, and 
• A high rate: which applies to the balance of financial assets above the threshold.

Any proceeds from the sale of a former principal home intended to be used to purchase/build a new principal home held in financial assets are deemed only at the lower rate if it is within 24 months since the sale of the former home and the sale occurred after 1 January 2023. Where the sale occurred before 1 January 2023, there is no income test concession applied to these financial assets and they are subject to normal deeming as per the table below.

The relevant Minister reviews the rates from time to time in view of changes in the prevailing general interest rates. Effective from 1 July 2022 the applicable deeming rates are³:

Applying the theory

Here are two examples which demonstrate how a client’s assets would be assessed under the current means testing guidelines.

Example:

Kate and Brendon are a pensioner couple. Their financial assets are:

Example:

Deeming – Full Pension as at 1 July 2024⁴

A single pensioner (no children) could have financial assets of $300,620 (assuming their only source of income is from the said financial assets and their total assets were below the relevant threshold e.g. $314,000 (for a homeowner) and still receive a full pension:

A pensioner couple (no children) could have financial assets of $470,000 (assuming their only source of income is from the said financial assets, in accordance with the relevant asset test threshold e.g. $470,000 for homeowners) and continue to receive a full pension:

While the assessable income is below the income free area of $372 per fortnight for a couple, the amount is at the asset test free area for a couple of $470,000. Any additional assets would reduce the couple’s rate of pension under the asset test.

For any retirement planning queries, please contact a BDM.

Next: Transition to retirement tax strategies

1. https://www.servicesaustralia.gov.au/asset-types?context=22526
2. https://www.servicesaustralia.gov.au/income?context=22526
3. https://www.servicesaustralia.gov.au/deeming?context=22526
4. https://www.servicesaustralia.gov.au/income-test-for-age-pension?context=22526