9.6.4 Treatment of Income and Assets Disposals

Last amended: 1 June 2009

Asset disposals before 1 July 2002

When a person is claiming a pension, benefit or allowance, or is in payment, assets disposed of before 1 July 2002 are classified according to pre-pension or pension years and are included in the person's assets for assessment purposes. These assets are included for five years from the date of disposition, the amount of which is the lesser of:

• the sum of the first disposal and any other disposals made during the pre-pension or pension year which exceed $10,000, or
• the first disposal.

A disposition of assets that is more than 5 years old is disregarded. Pre-pension and pension year rules do not apply to disposals occurring on or after 1 July 2002.

Asset disposals on or after 1 July 2002

Asset disposals on or after 1 July 2002 are classified according to tax years and are included, together with other dispositions, as assessable assets for pension purposes. These assets are included for five years from the date of disposition, the amount of which is the lesser of:

• the sum of the disposition and any other dispositions made during the same tax year which exceeds $10,000, or
• the disposition.

Likewise, amounts that do not exceed $30,000 over the 5 year rolling period.

Members of a couple

If a person, a person's partner or a couple together dispose(s) of an asset, 50% of this asset is included in the value of the person's assets and 50% is included in the partner's assets for five years.

This approach continues if the disposition was jointly made, and the couple separate, or one of the members of the couple dies.

If you are reasonably satisfied that the disposition was not jointly made, and the couple separate or one member of the couple dies, the treatment of the disposition depends on which member of the couple disposed of the asset. In this case, the value of the disposed asset will be included in the value of the asset of the person who actually made the disposition.

If the person who made the disposition dies, the deprived amount held against the surviving partner is removed, as they did not make the gift.

Rolling period vs pension years

For disposals of assets that occur on or after 1 July 2002, the rolling period rule applies. This means that whether or not a disposal of assets occurs prior to commencement of pension, it will be counted as a deprived asset if the $30,000 disposal of assets ' free area' is exceeded in the rolling period. This contrasts with the former rule that applies to dispositions that occurred before 1 July 2002 where a person could dispose of $10,000 in each pension year (this is the total of $50,000 over the 5 year period) without impacting on their assessment.

Transition between pension year and tax year

In the transition from pension year to tax year assessment it is possible that a person can dispose of $10,000 in the 12 months after the pension year without exceeding their annual disposal of assets limit. For example, a person who has a pension year that commences 20 June could dispose of $10,000 on 25 June 2002 and then dispose of a further $10,000 on 5 July 2002. As all pension years ceased on 30 June 2002, they have not exceeded the annual limit applicable prior to 1 July 2002. If the person did not dispose of a further amount before 1 July 2003, that is, the tax year 2002/03, they do not exceed the initial annual limit applicable from 1 July 2002.

Disposal of ordinary income

A person who disposes of income without associated assets on or after 1 June 1984 will have the actual amount of the disposition included in the person's ordinary income for income test purposes for the period of the disposition. The amount can be reduced by consideration received. If the person is a member of a couple then 50% of the amount is to be included in the person's ordinary income and 50% in the partner's income.

This approach continues if the disposition was jointly made and the couple separate or one of the members of the couple dies.

If you are reasonably satisfied that the disposition was not jointly made and the couple separate or one member of the couple dies, the treatment of the disposition depends on which member of the couple disposed of the income. In this case, the value of the disposed income will be included in the ordinary income of the person who actually made the disposition.

If the person who made the disposition dies, the deprived amount held against the surviving partner is removed, as they did not make the gift.    

Note: For information in respect of disposal of rental income access this link.