When a property valuation is required
A valuation of a person's interest in real estate is required where the person is:
- assessed under the assets test; or
- has assets within $10,000 of the assets value limit; or
- where there is evidence that the value of the real estate may be underestimated.
In other circumstances, such as for new property acquisitions by income-tested pensioners, the evidence of the purchase price may be used (as this is a reliable indicator of market value), or the pensioner's estimate of the market value of the real estate may be held.
The dates of effect for pension grants or reassessments, which are made when a property valuation is received from a property valuation service provider, are set out below.
New pension grants
Where a new claim for pension includes information about an assessable property, a valuation from a property valuation service provider should be sought immediately. Withholding the new claim determination until the valuation is received allows the confirmed property value to then be held in the pension assessment from the date of grant.
Grants based on the pensioner's estimate of property value, prior to obtaining a valuation, should not be made because any subsequent reduction, on receiving the confirmed valuation, can then only be effective from the day the amending determination is made.
New property purchases or acquisitions
If a pensioner acquires a new property, this is a notifiable event as it is a change of circumstance likely to affect pension. The date of effect of the pension adjustment accordingly depends on whether the notification obligations under section 54 are met.
The date of effect will be the day following the end of the notification period (where the acquisition is notified in time), or the day of the event (the purchase) where the event is not notified within the allowed notification period.
A valuation is not generally required in these cases, as the purchase price or transfer valuation will provide reliable evidence of the market value of the property. A copy of documentation confirming the value should be obtained. Where the person is assessed under the assets test, or their assets are within $10,000 of the assets value limit, a DRS Review should be set to obtain a valuation from a property valuation service provider in 12 months time.
If a valuation is required to confirm the value of a newly acquired property, this should be sought immediately to avoid delay in actioning a pension reduction which may lead to an overpayment.
Changes to existing property value are generally not notifiable
Pensioners are generally not required or expected to obtain property valuations, or to notify the Department of the change in asset value of an existing property, as there is not an identifiable “event”. The Department obtains a valuation, usually updated on an annual basis, for this purpose. (Exceptions may arise if, for example, an existing property has been extended, as there is now an identifiable event date which must be notified).
The date of effect of a pension reassessment resulting from a change in held property value is based on the date the amending determination is made, following receipt of the valuation. It does not depend on advice being provided by a pensioner within the allowed notification period.
Reviews of the value of existing property
Property values already included in a pensioner's assessment may be reviewed as a result of actions initiated by the Department or the pensioner. This includes annual property valuations, targeted compliance reviews, individual reviews, and pensioner initiated reviews.
Pensioners are generally not required or expected to obtain property valuations, or to notify the Department of the change in asset value of an existing property, as there is no identifiable 'event'. However, if any changes are made that may impact on the value of the assessable property, a revaluation may be required. For example, an existing assessable property which has been extended or the creation of an easement that limits the way part of the property can be used, may require a revaluation.
Pension increases due to reductions in property value
The date of effect of a pension variation arising out of a change in value of an existing property is determined as follows:
Pension increases due to reductions in property value – the effective date is determined according to section 56G:
- Where the valuation was obtained following pensioner notification of a change in their assets – from the date the advice from the pensioner was received, or the date of the change, whichever is later;
- Where the valuation is obtained as part of a Departmentally initiated action, including the bulk annual property valuation exercise – the date the valuation is received (ie the date the response to the bulk valuation is received, to be confirmed by DI each year).
Pension reductions/cancellation due to increases in property value
Pension reductions/cancellation due to increases in property value – the effective date is determined according to section 56H:
- Reductions can only take effect from the date the determination is made, or a later date;
- Reductions resulting from the bulk annual valuation exercise take effect from the beginning of the first pension period in July each year following the IFA/AFA indexation (if the determination is not made by this time, the date of effect is the date the determination is made);
- Where the property valuation moves a pensioner from the income test to the assets test (or to nil payability), the date of effect is extended by three months from the date the new pension outcome is calculated, the determination finalised and the pensioner is then advised of the pension reduction. This extension allows pensioners who are affected by increasing property value an opportunity to rearrange their financial affairs, and applies to individual and targeted reviews, as well as to the bulk annual property valuations (see DI C44 of 2005). This deferred date of effect is limited to payments under the VEA and does not cover age pension recipients paid under the Social Security Act.;
- The intent of this policy decision is to provide pensioners who are affected by increases in property value currently in their pension assessment an opportunity to rearrange their circumstances. The three month extension applies to all property revaluations resulting from departmentally-initiated reviews, including bulk valuations and individual cases. It was not intended that this concession apply to newly acquired property, to pensioners engaged in planned property investment strategies or to property changes involving a notifiable event (such as building an extension which increases the assessable property value). For this reason:
- The three month extension is limited to pensioners affected by the higher revaluation of an existing property within their assessment; and
- The extension does not arise where pensioners acquire newly assessable property value by purchase or sub-division, through the loss of exempt status of the former principal home, through inheritance or lottery win or through notifiable property changes.
- Where a property is sold or disposed of before the end of the three month period of extension, this is a notifiable event. The date of effect of the reduction/cancellation arising from the proceeds of the sale will be the event date or the end of the notification period, depending on whether the notification requirements are met.
Property valuation does not extend exemption periods otherwise provided for
The VEA provides specific exemptions for the assessment of property value, usually involving the continued exemption of the former principal home.
Where the VEA provides a specific period of property exemption, that period of exemption should not be extended under the date of effect rules. For example, the allowed two-year exemption period for the former principal home on a pensioner entering aged care should not be extended by any delay in preparing the amending determination. A property valuation should be obtained in advance, preferably after 18 months, so that the determination returning the principal home value to the assessment can be finalised after two years, as intended by the VEA.
The three month extension in the date of effect for people moving to the assets test does not apply to these cases. This is because the pensioners have already had an extended period of time in which to rearrange their financial circumstances.