Nick Bruining Q+A: Can I give away my house, keep the age pension and dodge higher aged-care fees?

Question

I have nephews and nieces who are the benefactors in my will. I am single and have been receiving the full age pension for many years.

One of my nieces has a large family who will need a bigger house in a few years. Can l give her my title deeds so that at a later time, if I need to go to residential aged care, l am free of property ownership?

I want to find out my position before discussing this with my niece.

Answer

There are a few things to consider. While you can definitely give the title deeds to your niece, that in itself has no effect.

The change of ownership of the property needs to be lodged with Landgate and there are a number of forms and fees to be paid. A settlement agent can assist here. Your niece will need to pay stamp duty on the market value of the home, which could be thousands of dollars.

Such a transfer would be regarded as a gift by Centrelink. Within 14 days of the property transfer, Centrelink will need to be notified.

The market value, less the annual gifting limit of $10,000, will be recorded as a financial asset and that value will be used to calculate the deemed income under the income test. In essence, if the gifted value of the home is more than $252,000 you will see a reduction in your pension due to the income test effects.

If the gifted value of the home in addition to your other assets is more than about $580,000 you will see your pension reduced by the asset test.

Unfortunately, if the gift value exceeds about $972,000, you would lose your pension for up to five years. This could also affect your aged-care fees.

Question

I hope you can clear up some confusion over the term “deemed income”.

We are a married couple in our 80s on the full pension. Does the deemed income include the pension as well as any income from part-time working?

We have a modest term deposit in which the interest earned for the previous 12 months was around $17,000.

We have always just rolled over any interest earned and not taken it as income, but I am wondering if this would be called deemed income?

Answer

Deemed income is used by Centrelink to apply a notional rate of income to financial assets, rather than the actual income they may generate.

For example, a $100,000 term deposit may pay 4 per cent a year in interest — or $4000 — and a share portfolio of $100,000 may pay actual dividends of $5365 for the year.

These actual income figures might be used by the Australian Tax Office, but they are ignored by Centrelink.

The deeming system would see the $100,000 value of the shares added to the $100,000 term deposit. To the $200,000 would be added any reinvested amounts when received, the amounts of money in other bank accounts, any superannuation funds you have — both pension and accumulation phase — managed funds, bullion, cash and, finally, gifts over certain limits.

As a couple, the first $106,200 of this grand total is deemed to be earning 0.75 per cent a year. All amounts above $106,200 are deemed to be earning 2.75 per cent a year. These two annual totals are added together and then divided by 26 to give a per-fortnight amount.

To this figure, Centrelink would add the actual after-expense income earned from any real estate investments, foreign pensions, plus fortnightly earnings from employment, less the $300-a-fortnight working bonus credit.

If this grand total exceeds $380 a fortnight, your combined pension is reduced by 50¢ for each $1 over.

If the $17,000 interest payment was rolled over with the original deposit, you should notify Centrelink within 14 days. That will change your deeming calculations described above, based on the original term deposit(s), now plus the $17,000.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association