In the Winter 2002 Edition of Age Pension News for Seniors we advised about certain assets and the impact these would have on your pension. The following article provides further information about the assets test and looks at other types of assets and how Centrelink treats them. Future editions will look at the income test and how Centrelink treats the various types of income.

Most age pensioners are not affected by the assets test. The assets test does not apply if your assessable assets are lower than the assets test thresholds, ie the allowable amount of assets you can have before your rate of pension is affected.

The threshold for a single home owner is $145,250 and for a partnered homeowner $206,500 combined. The thresholds are higher for non-home owners (refer to page 22). Centrelink works out the amount payable under both the income and assets tests and applies whichever produces the lowest rate of pension. Most pensioners are affected by the income test rather than the assets test and it is often the case that customers with assets over the threshold amounts are also affected by the income test, rather than the assets test.

For Centrelink purposes, an asset is any property or possession owned partly or wholly by a person. It includes assets held outside Australia and debts owing to the person. Some assets, like the family home and certain income streams, are exempt.

House contents and personal effects: The asset value of your house contents and personal effects is the net market value (e.g. an amount you would receive if you sold them on the open market). Household items include:

• furniture and curtains;

• electrical appliances;

• antiques or works of art; and

• personal effects including, jewellery for personal use and hobby collections (stamps, coins etc.)

Permanent fixtures are not included.

Motor vehicles, caravans, boats and trailers: The asset value of any motor vehicle is generally the amount that would be received if sold on the open market. If you have any outstanding loan or encumbrance this can be deducted from the market value.

If your principal place of residence is a caravan or boat, the asset value of it is disregarded, as is the case for homeowners.

Value of real estate (including holiday homes): Real estate property, in Australia or overseas, which is owned by you and/or your partner is an asset. It does not include your home, unless it is used for commercial (business) purposes. It does not include the land on which your home stands, unless your home is on a property that is more than 2 hectares (5 acres) in area, or it is used for commercial (business) purposes. Any land exceeding 2 hectares will be assessed for assets test purposes.

You do not need to have the property professionally valued. However, we may organise for the Australian Valuation Office do so at no cost to you. If you disagree with a valuation, you can have the decision reviewed. The value of the real estate is reduced by the amount of any outstanding charge or encumbrance (loan) over the asset. If the property is rented, you may also need to show your and/or your partner’s income tax returns or provide details of your income and expenditure relating to the property.

Businesses: If you are carrying on a trade, occupation or profession as an on-going concern, then you are operating a business (this includes farming). Business includes sole traders and partnerships.

Generally, for sole traders and partnerships, Centrelink uses the business entity accounting convention. Assets and investments not related to the principal function of the business, are removed and assessed separately.

The assessable asset value of a business is primarily based upon information contained in the balance sheet.

Assessable income in regard to a business is based upon information contained in the profit/loss statement.

Assessing business profit for accounting purposes, taxation purposes and social security purposes is different. Accounting business profit is calculated in accordance with various accounting standards, ie guidelines followed by the accounting profession. However, for taxation and social security purposes this profit is calculated according with various legislative provisions.

Private trusts: Private trusts include family trusts, non-complying Self Managed Superannuation Funds and non-complying Small APRA funds, testamentary trusts, those fixed trusts with fewer than 50 members, and overseas trusts. They do not include fixed trusts with more than 50 members, complying Self-Managed Superannuation Funds or public trusts, such as unlisted property trusts or equity trusts. The assets and income of private trusts may be attributed to a person based on a number of tests. In circumstances where the assets and income of the trust are attributed to a person, Centrelink will assess those assets and income as if they were the person’s personal assets and income.

Private company: As with private trusts, the assets and income of a private company may also be attributed to a person based on a number of tests. If a person is attributed with the assets and income of the company, those assets and income will be assessed as if they were the person’s personal assets and income.

Overseas assets: Any assets held outside Australia are converted into an Australian dollar value. The rate used is the Commonwealth Bank of Australia’s airmail buying rate available 15 working days prior to the first business day of each month. The rate is used for the entire month and updated on the first business day of the following month. From 1 January 2003, rates will obtained five days prior to the start of the month.

Income streams: The asset value for an asset tested income stream (long term) is attributed to a person. The asset value is based on the purchase price of the income stream and is reduced over time, as the capital used to purchase the income stream is returned to the person. However, the purchase price of an asset tested income stream (short term) is attributed as an asset of the person and deemed under the income test.

If you have income from or assets held overseas, Centrelink converts their value into Australian dollars so we can work out how much to pay you.

To ensure that your Australian payment is calculated as accurately as possible, from 1 January 2003, Centrelink will further improve the way the value of your non-Australian income and assets is calculated in Australian dollars.

The improved processes mean that Centrelink will now use the exchange rate available five working days prior to the start of each month. This will mean that the exchange rate applied to your non-Australian income and assets will more accurately reflect the exchange rate available on the open market. The result for you will be an even more accurate assessment of the value of your income and assets in calculating your rate of Australian pension or benefit.

Previously, the exchange rate that applied in a month was taken 15 working days before the start of the month. For example, the rate for December 2002 was the rate on 11 November 2002.

You do not have to do anything about this change. It will apply automatically to everyone who has non-Australian income or assets.

The exchange rates used by Centrelink are the Commonwealth Bank on-demand airmail buying rates. However, customers receiving an Italian pension from INPS (Instituto Nazionale della Previdenza Sociale) have their income converted to Australian dollars at the exchange rate used by the Italian bank.

If you have non-Australian income or assets, Centrelink will continue to send you a letter four times a year that lists the exchange rates used in the preceding three months. If you wish to know the current exchange rate used by Centrelink at any time, please call Freecall™1800 050 041.