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Disregarded Assets Relating to the Principal Home
Last amended: 10 August 2012
Assessing the principal home
A person, including a person who is a member of a couple, may only have their right or interest in one residence disregarded for assets test purposes. Where members of a couple (including an illness-separated couple) reside in different homes, the full value of the residences other than the principal home are assessable. Generally, where residence is shared across more than one home, the home of greatest value is determined to be the exempt asset.
Curtilage is the land adjacent to the exempt principal home. A certain amount of curtilage is disregarded for the assets test. The amount of curtilage that is exempt depends on whether the private land use test or the extended land use test is satisfied. Under the private land use test, up to two hectares on the same title as the principal home may be exempt. Under the extended land use test, all land on the same title as the principal home may be exempt.
Home sale proceeds exemption
If the principal home is sold, the value of the proceeds is assessed as an asset, unless the proceeds are likely to be used to acquire a new principal home within 12 months.
The portion of home sale proceeds that the person intends to use in acquiring the new residence will be a disregarded asset. The proceeds can remain a disregarded asset when progressively used for the new home. For example, to purchase land on which they intend to build the new home or to make progress payments for construction of the new home. The asset exemption ceases at the earliest of:
- when the new principal home is acquired,
- when they no longer intend to acquire a new principal home with the proceeds, or
- 12 months from the home sale (unless an extension of an additional 12 months applies, due to delays beyond the control of the pensioner).
Note: Home sale proceeds, including any portion considered a disregarded asset, remain subject to the deeming provisions under the income test. When a progress payment is made for the construction of the new home, the deductible asset amount and the financial asset value should be reduced accordingly to ensure the correct deeming calculation. The deposit and any progress payments, at the time of being put towards the construction of the new principal home, acquire exempt principal home status.
If the person has acquired their new principal home but is prevented from immediately occupying it, the exemption may continue for a reasonable period. For example, occupancy may be delayed by an existing lease, or if the vendor needs to remain in residence for a period. If the continued exemption period would exceed 24 months from the date the former home was sold, please seek advice from Policy Advisings Income Support,
Assessment where home sold and another purchased on terms
If a person sells their principal home on terms and purchases another residence on terms, only the balance due from the sale that is to be applied to the purchase of the new residence is an exempt asset. The exemption applies for the duration of the terms under respective agreements. Neither the standard 12 month exemption period, nor the extension applies to these cases.
Compensation and insurance payments for a lost or damaged principal home
Compensation and insurance payments received by a person for loss of, or damage to the principal home's buildings, plant or personal effects are a disregarded asset for 12 months from the date that the payment was received. Compensation and insurance payments can be regarded as including payments received outside a formal contract of insurance (for example, to include government grants or public donations) provided these additional payments are intended to compensate the person for loss of or damage to buildings. The exemption applies to any payments of compensation or insurance received, and is not limited to the value of the loss or damage incurred. Compensation and insurance payments received for loss or damage to the principal home's building, plant or personal effects are exempt from assessment for 12 months., regardless of whether those payments are subsequently applied towards the rebuilding of the principal home.
If the person uses all or part of the payments received to repair/rebuild their old home or acquire a new home the total value of this payment can remain a disregarded asset even when progressively used to repair, rebuild, buy or build the home, such as for land or buildings. The value of the repair/rebuild, plus the value of the land that is part of the principal home and any previous structure already on that land, is disregarded under the assets test until the earliest of:
- when the home is repaired, rebuilt, renovated or acquired,
- when they no longer intend to acquire a principal home with the proceeds, or
- 12 months from receipt of the compensation or insurance payment (unless an extension of an additional 12 months applies, due to delays beyond the control of the pensioner).
The exemption provision concerning received amounts of insurance or compensation is independent of the exemption provision concerning repairing/rebuilding or acquiring a new home. In the event that there are residual amounts after rebuilding/buying and 12 months has not elapsed, those residual amounts of compensation and insurance payments remain exempt until the end of the 12 month exemption period.
Note: Compensation and insurance payments for a lost or damaged principal home while considered a disregarded asset, are also exempted from the deeming provisions under the income test.
This approach also applies to compensation and insurance payments for lost or damaged real estate property.
A person's 'partner' is someone who is a member of a couple with that person.
The principal home has the meaning given by subsection 5LA(1) of the VEA and subsection 5LA(2) of the VEA. The principal home of a person is generally the place in which they reside. In certain circumstances, however, the principal home of a person can be the place in which they formerly resided. The following property is regarded as part of the principal home.
- the residence itself (e.g. house, flat, caravan),
- permanent fixtures (e.g. stoves, built-in heaters, dish-washers, light fittings and affixed carpets),
- [glossary:curtilage:DEF/Curtilage] (i.e. two hectares or less of private land around the home where the private land use test has been satisfied, or all land held on the same title as the person's principal home where the extended land use test has been satisfied), or
- any garage, shed, tennis court or swimming pool used primarily for private purposes provided it is on the same title as the principal home.
A disregarded asset is one that is not included when calculating the value of a person's assets under the assets test, irrespective of it's value.
For a full legislative definition see Section 52 of the VEA.
Curtilage is the land adjacent to the exempt principal home. A certain amount of curtilage is disregarded for the assets test.. The amount of curtilage that is exempt depends on whether the private land use test described in section 5LA(3) of the VEA, or the extended land use test described in section 5LA(4) of the VEA, is satisfied. Under the private land use test, up to two hectares on the same title as the principal home may be exempt. Under the extended land use test, all land on the same title as the principal home may be exempt.
One element of the means test for income support pensions whereby the rate of pension payable to a pensioner reduces progressively as their assets increase above a certain threshold known as the assets value limit (AVL).
The extended land use test is applied to income support recipients of veteran [glossary:pension age:DEF/Pension Age] whose [glossary:principal home:DEF/Principal home] is on a property of more than [glossary:two hectares:DEF/Two Hectares] as described in [glossary:section 5LA(4):] of the VEA.
For asset test purposes, personal effects and household contents include;
- clothing; jewellery; hobby collections (such as stamps and coins); furniture; paintings and works of art; soft furnishings (curtains etc.); and electrical appliances other than fixtures (such as stoves, light fittings etc).
The following assets are not considered to be personal effects:
- Unmounted gems; collections held for other than purely personal purposes; cars and trailers; and boats and caravans.