How the land you own affects your Age Pension

How the land you own affects your Age Pension

Many people who are preparing for retirement or who have already retired live in the country on the sizable land, and then, there are others that are looking for a “tree-change” and want to move away from the fast city life and are looking for tranquillity and peacefulness of the countryside.

In either of those situations, if you wish to live in the country and still be eligible for part Age Pension, you have to be very mindful about the size of the land you are holding or you intend to buy.

The reason I am talking about today is because I received an email, and when reading it, I realised this could be an issue that many retirees might be facing.

The email says:

“Could you do a video explaining how the land you own affects the age pension? I checked up the info and it only says that first 2 hectares of the land (plus the house) will be excluded from the asset test but nothing else about the rest of the land. Reason I’m asking is that many people (me included) are considering moving to rural area after retirement.

But because the info on land ownership affecting age pensions is not clear, it’s hard to plan our tree-change. Thank you”

I have already written on a similar topic: “Is my home always exempt from Age Pension”, so see for the full explanation of more situations, when you should pay attention how your home might be viewed under the Assets Test.

And today I will try to answer the question of a home on the land greater than the exempt 2 hectares, as I know it could be of interest to many.

First, we need to start our conversation by understanding what is considered as part of your home according with Age Pension rules.

Items that are included as part of your home are:

1. the house itself, or a caravan or a unit or a boat
2. all permanent fixtures of the home: stove, wardrobes, dishwasher, light, carpets etc
3. any garage, shed, swimming pool, tennis court, primarily used for private purpose, providing it is on the same title.
4. the land that surrounds your home. It has to be on the same title, up to 2 hectares (5 acres) and it has to be a private land. The confusion is what if your land is bigger than those 2 hectares, so I will try to explain this issue today.

And please be very careful when converting hectares to acres or to m2. Anyone coming from Europe will have a huge problem with this conversion, just like me.  

According with today’s rules, your home is generally exempt from means testing when calculating the Age Pension entitlement.

Let’s look at this example:

David and Mary are retired 67 years of age each and are receiving a small Age Pension from Centrelink.

Their assets are as follows:

• Family home valued at $800,000
• Home contents of $10,000 (Centrelink value)
• One car valued at $50,000
• David had $450,000 in his pension account – drawing minimum payments $22,500pa
• Mary has $350,000 in her pension account – drawing minimum payments $17,500pa
• Cash in bank $20,000

Their total Age Pension is approx. $198.50pf per person, therefore the total Age Pension received amounts to $10,330pa for both partners combined.

The total annual income earned amounts to $50,330.

Is this the best they can do income wise from their assets? Of course not!

If this is your situation, you have similar assets value and you are on that level of income and similar level of Age Pension, please set up a meeting with me, and let’s reorganise and maximise your retirement income to your advantage properly.

But now David and Mary are thinking of selling their family home and buying a house on a bigger land in the country, where they can enjoy fresh air, lots of space and tranquillity.

So they sold their family home in the city and bought a new home also for $800,000 on the land of 4 hectares, therefore 2 hectares above the exempt size.

Here is my beautiful drawing of the land David and Mary bought:

Based on the information gathered about the land, we can tell that home together with the shed, garage, driveway and the garden in front or behind the home occupies approximately 50% of the land size. The rest is unusable land of the forest and a swamp.

So how would Centrelink assess such an asset, after all its size is greater than exempt 2 hectares.

Well, Centrelink will try to get the valuation of the total land, let’s say it is $350,000.

If your home occupies 2 hectares out of 4, then $175,000 of the land value would be exempt, plus the full estimate value of your family home of $450,000.

Therefore, in this example out of the new family home of $800,000 value, $625,000 would be exempt under the home exemption, but the remaining $175,000 would be counted as an asset of the excess land.

If we go back to our example of David and Mary, by moving to the country and buying the land that is greater than the exempt 2 hectares, they just lost their Age Pension entitlement, as their current assessable assets of $1,055,000 now exceed the maximum allowable assets value of $1,012,500.

The assets limit applies to the quarter commencing on 20 March 2024.

But there are situations when the full size of the land is exempt for Age Pension and that is good news for farmers.

Your full land size, regardless of how big it is, can be fully exempt from means testing if:

• You have lived on the property for 20 years or longer
• The full land over 2 hectares is on one title
• Effective use of the land has been made, where possible
• Obviously you have to be of Age pension age.

Please remember that any land that is not held on the same title then your family home will be assessed under the Assets Test.

Your livestock, plant and machinery are all included in the Assets Test.

Going back however to the situation of buying a country property with the land size above the 2 hectares:

1. Make sure that the property has the whole land under the same title as the new family home.
2. Calculate your figures correctly, speak with real estate agents to figure out what percentage of the property size is occupied by the home together with necessities, such as driveway, shed used for private items (and not farm machinery), garage and the garden that one can tell, is part of home.
3. Speak to a financial planner to run the figures for you, to see at what point you might lose your entitlement to the Age Pension.

I hope you found this article interesting; it might not apply to you immediately, but maybe later in the future, or maybe your friends are thinking of the “tree-change” so pass on the link to them.

If you need any financial, retirement, tax of retirement income planning advice, just organise a meeting for us to see how your financial situation could be improved and benefits maximised.

By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement