As the client does not own the unit that they live in, Centrelink needs to use a different set of rules than homeownership to determine if the client is a homeowner or not. The rules are similar to those that apply for a granny flat arrangement.
If the client pays an entry contribution of more than $216,500 (the difference between the homeowner and non-homeowner asset test threshold) they are a homeowner and the value of the entry contribution is an exempt asset when determining their Centrelink entitlements. Deprivation rules do not apply and do not need to be considered.
If the entry contribution is less than $216,500, they are a non-homeowner and the value of the contribution is counted as an assessable asset (but not subject to deeming under the income test).
If assessed as a non-homeowner, the client may be eligible for rent assistance in relation to the service/maintenance fees paid to the village operator.
Land lease communities (over-50s parks)
Land lease communities are becoming an increasingly popular option for retirement living and an alternative to retirement villages. They are similar to a retirement village, but the legal structure is more like a caravan or transportable home park. This creates different consequences and outcomes for clients.
Land lease communities are regulated by State governments under the relevant manufactured homes or caravan parks acts. No guarantees are provided by the government and the government does not regulate fees.
The Park operator owns the land. Residents buy the building and pay a rental site fee for the land that their building sits on. Effectively this means they own the home but rent the land. They usually have to buy the home through the park operator from selected options.
The deferred management fees payable in retirement villages generally don’t apply. If the client decides to leave the park, they may not be able to rent the home as only approved owner-occupiers may be allowed. But clients may be able to choose to sell their home through the park management or real estate agent (depending on contract) and keep all the capital gains or incur all the capital losses upon sale.
The legal arrangements and contracts can still be complex, and clients should see legal advice.
Centrelink assess the client as a homeowner because they own the home. However, because they are also paying rent for the land, they could be eligible for rent assistance if this amount is more than the minimum threshold and the client receives a Centrelink / DVA pension or allowance.
What does all this mean?
Centrelink/DVA implications – Without financial advice to understand the differences and strategies to structure assets and income correctly, the resident/s may receive a lower age pension entitlement.
Age Pension rates and income test thresholds are current to 19 September 2021. Centrelink asset test thresholds that apply:
|For full pension||For part pension|
Income test thresholds that apply:
|For full pension per fortnight||For part pension per fortnight|
The role of the financial adviser is to help the customer understand the financial implications of their choices and the best way to structure the selected arrangements to manage cashflow and overall net wealth. Ultimately, it is the customer’s choice which way to proceed as it is not just about the bottom line.
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