Rental income can be a great way to boost your overall income as you plan for retirement. But how does it impact your pension?
Renting isn’t just about leasing out a few properties for extra cash. It can help you save, gain tax benefits, and capitalize on your property’s value.
This makes renting an attractive option for many Australians. However, with the property market booming, it’s essential to understand how rental income affects your pension, particularly through Centrelink.
So, does rental income affect your pension? The short answer is yes. Let’s explore how.
How does rental income affect my pension?
In Australia, the age pension is subject to an income and assets test. Here’s how rental income is assessed:
- Income Test: Rental income counts as assessable income. This means that your rental earnings will be included in the calculation to determine your pension eligibility and payment rate.
- Australian Assets Test: Your investment property is considered an asset. However, your primary residence is exempt from this test, provided it meets specific criteria (e.g., you reside there for at least two months and it sits on up to two hectares of land).
The government regularly reviews the value of your real estate. As property values increase, your rental income might also rise, impacting your pension payments. It’s crucial to inform Centrelink about any changes in your rental income to avoid penalties.
Do property maintenance costs affect my pension?
Know that you don’t have to bear the burden alone. You can deduct government rates and costs for property maintenance with regular reporting of your tax returns.
This report will indicate the tax you pay on your rental income and allows both parties to set the records straight.
There are expenses you cannot claim too. These include building write-offs, building costs, and loans collected for property establishment.
All these policies apply to renting.
How to calculate pension from rental income
Aside from these deductions, what is the calculation for a pension from rental income?
- Figure out the amount received in rent per fortnight. That is every four weeks, not a month.
- Deduct one-third of the total amount received. This fraction is untouched.
- Deduct mortgage interest payments on the property, if any.
- The result is assessable income, available to your pension company.
Also, you are obliged to state;
- the address of the real estate or, better still, your rental property
- the purchase price of the real estate
- the amount of any mortgage or loans you have secured against that property
- How buying the property has made any changes to your other income and assets.
Special Cases
If you rent out rooms on a short-term basis (e.g., lodging or bed and breakfast), the percentage of income considered for pension purposes varies:
Depending on the exact services you offer, your income percentage will change as regarded by the pensioners. The more, the less.
For instance, these are percentages for Services in Australia.
| What they pay for | How much counts as income |
| Lodging only | 70% |
| Lodging and breakfast | 50% |
| Lodging and all meals | 20% |
However, you can make more deductions. These deductions are possible if you can prove that having lodgers costs more than what you are paid. Those expenses must also show in your tax returns.
What’s more? You can deduct mortgage interest or rents you pay on your main house.
Exemptions from Rental Income Affecting Pension
According to the Australian Department of Veteran Affairs, anyone who has entered care since January 1, 2017, and is paying accommodation charges of any kind is exempt from rental income deductions.
Those who entered care before the stated date are not eligible for the exemption. The exemption period lasts for two years from the start date that you and your partner vacate the premises.
Any form of income from renting it out is considered for pension purposes, but until the expiry of the two years, the house is not regarded as your asset.
Subsequently, your pension can be adjusted if you notify the pensioners about:
- A sale of all or part of the property
- if you give away or transfer title to someone else(you are let off the hook of rental income tax!); and
- if you enter residential aged care.
Does rental income affect disability pension?
Does rental income affect your pension if you have a prolonged psychiatric, physical, or intellectual disability? The answer is yes and no.
People in this category are often allowed to access Disability Support Fund, but it can go sideways. Then other schemes come into play, like the Youth Disability Supplement.
Eligibility for the Disability Support Fund (DSF) depends on your income and assets test. If you are cleared as unable to work at least 15 hours for two years or your income level from all sources is below certain limits, you are more likely to qualify for the fund.
The test will cover your assets and sources of income, including your rental income. The higher your income, the lesser your disability pension figures.
In this light, do not try to sell any of your assets for cheap, as it would count against you. Such possession will still count as your asset since you decided to make the sale at a giveaway price.
These income test charts for disability pensions can help you know where you stand.
As you may already know, the maximum disability pension basic rate is $860.00, and if you fully qualify for the supplements, you can get up to $944.30 every fortnight. In another case, if you are below twenty, married, or dependent, these charts can help.
Related Articles
- How to convert your garage into a bedroom and rent it out
- Why landlords shouldn’t always ask for a rental increase
- Guide to renting to family and friends
Stay Updated
Understanding how rental income impacts your pension is crucial for effective retirement planning. Keep yourself informed about changes in regulations and ensure you report any changes in your rental income to Centrelink promptly.
For more tips on managing your rental income and pension, download our app. We help you find your dream home, save for it, and even decorate it. Stay tuned for more updates!
FAQ Section on ‘Does Rental Income Affect Pension? ‘
What assets can you have and still get a pension in Australia?
From March 20, 2024, the full pension is available under the assets test for homeowner singles with assessable assets under $301,750, and for homeowner couples, the limit is $451,500. For non-homeowners, the asset limits are $543,750 and $693,500 respectively.
What is considered income for Centrelink in Australia?
Centrelink counts various types of income towards eligibility for benefits, including salaries, wages, business or self-employment earnings, rental income, interest, dividends, and certain government benefits.
How much can you earn and still get the aged pension in Australia?
As of July 1, 2023, single pensioners can earn up to $204 fortnightly, and couples can earn $360 combined without affecting their pension rates. Earnings above these amounts may still qualify for some pension at a reduced rate.
What is the tax free threshold for pensioners in Australia?
Pensioners must file a tax return if their total income exceeds the tax-free threshold. Currently, the threshold for single pensioners is $33,000 and for couples, it’s $30,500.
