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Extension of Home Proceeds Exemption
Home proceeds exemptions
Home proceeds may be funds received from:
- the sale of the principal home, or More ?
- compensation or insurance proceeds received from the loss of, or damage to their principal home. More ?
The portion of home proceeds that the person intends to apply towards acquiring a residence that will be their principal home (including buying/building a new home or repairing/rebuilding a lost/damaged residence) may be treated as a disregarded asset for up to 12 months, or if extended, up to 24 months, from receipt of the proceeds.
Extension of home proceeds exemption
The home proceeds exemption may be extended for up to an additional 12 months. To be eligible for the extension, the person must be able to satisfy the delegate that they:
- continue to intend to use the proceeds to acquire a residence as their principal home,
- are making reasonable attempts to acquire a residence,
- commenced those efforts within a reasonable timeframe, and
- are experiencing delays beyond their control in acquiring the residence.
The extension requires a discretionary determination by a delegate.
Timeframe for the extension
The extension ceases at the earliest of:
- when the person acquires or completes their principal home,
- when they no longer intend to use the home proceeds to acquire a principal home, or
- 24 months from receipt of the home proceeds.
No further extensions are available in relation to the receipt of those home proceeds.
Assessment of extension
If the extension applies, the existing assessment arrangements for the exemption continue unchanged and are summarised in the following table.
If the exemption was for a principal home that was...
disregarded assetMore ?
not exemptMore ?
lost or damagedMore ?
disregarded assetMore ?
exempt (while a disregarded asset)More ?
eligible if lost or damaged home is uninhabitableMore ?
Making reasonable attempts
The requirement for a person to be making reasonable attempts to acquire a residence would be considered to be met if they had entered into some form of agreement. Examples include: signing a contract to purchase a house, purchasing a block of land for house construction, signing a contract with a builder or developer for construction of a residence.
Within a reasonable timeframe
The requirement for a person to have commenced efforts to acquire a residence within a reasonable timeframe would be considered to be met if they had taken action towards entering some form of agreement within six months of selling the home. Examples include: development of construction plans by an architect or draftsman, obtaining builder's quotes, contact with real estate agents.
Experienced delays beyond their control
The requirement for a person to be experiencing delays beyond their control in acquiring the residence would be considered to be met if they have been unable to commence or complete the purchase or construction of their home due to delays in the building industry.
Note: If the person's efforts to acquire a residence commenced more than six months after the proceeds were received, the delegate would need to be satisfied that the later delays were actually beyond the person's control and not merely a result of their delay in commencing efforts.
Example of home proceeds extension
Towards the end of the 12 months asset exemption of their home sale proceeds, the pensioner notifies the Department that building of their new home is not yet completed. They provide documents indicating that less than 6 months after the home sale, they bought a block of land ($100,000), obtained development approval for building of the home and signed a contract with a builder (approx. building costs $150,000). However, their builder has since experienced delays on other projects, which means that this project will now not be completed until some months after the exemption is due to cease.
If the delegate is satisfied, a determination can be made to extend the $250,000 asset exemption for up to a further 12 months (ie up to 24 months from the home sale date). If their new home is completed within this extended time period, the pensioner is required to notify DVA and the extended exemption would then cease.
Section 52(2) VEA
Section 52(2A) VEA
Home Lost or Damaged
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.