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Assessing Loans and Guarantor Arrangements


Last amended: 10 August 2007

Loans made by the pensioner



Money loaned by a person is an assessable asset. The assessable value is the amount still owed to the person. If the loan was made by the person before 22 May 1986 it is assessed in the same way as a loan made after this date. Loans are financial assets and are deemed.

Loans represent a contractual agreement between the parties, involving an offer, acceptance, agreed consideration, and shared intent regarding the conditions of the loan. If misrepresentation occurs in the making of the loan agreement, or if a party does not have a clear understanding of the terms of the agreement they are signing, the agreement may be challenged at law. Where legal action is being taken (for example, by a client's agent with power of attorney) to annul a loan agreement which was misrepresented to the client, or where the client was not competent to sign the agreement, the loan amount may be excluded from the pension assessment.

Loans made by a partnership

A loan made by a business partnership is assessed as an asset of the partnership. The value of the person's asset is assessed in the same proportion as the value of their share in the partnership.

Failed loans and loans that no longer exist

If a failed loan still exists, the loan can be:

  •       a disregarded asset if the hardship provisions are satisfied, and
  •       exempted from deemed income rules if the deeming exemption provisions are satisfied.

When a loan has been repaid the loan no longer exists. In some circumstances a loan no longer exists even though it has not been repaid. When a loan no longer exists the assessable value is no longer the amount owed. However there may be some other type of asset, for example a debt. The assessable value of a debt is the recoverable value.    

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Guarantor arrangements

A person does not dispose of assets merely by agreeing to be guarantor for a loan. However, if the borrower defaults on the loan, the guarantor becomes liable to repay the loan. The deprivation rules apply to the amount the person (guarantor) has repaid, from the date the guarantor repaid the loan (or had an asset sold to repay the loan).

The amount the person repaid is treated as a debt owing to the person. This means it is assessed as an asset of the person. The assessable value is the recoverable value. The deeming rules do not      apply to debts as they are not financial investments.

If the person takes legal action against the borrower to recover the amount they repaid on the borrower's behalf, the deprivation rules do not apply.

According to section 5J of the VEA, a financial investment means:

     but does not include an investment in an FHSA (within the meaning of the First Home Saver Accounts Act 2008) or a designated NDIS amount.