Does Rental Income Affect Pension? 

April 27, 2022
does rental income affect pension

Key takeaways:

  • Your rental income usually affects your pension if you are earning from leasing real estate you own.
  • There are some exceptions, like if you are in a care or aged facility.
  • There are also exceptions when it comes to medical conditions like intellectual disabilities.

Rental income is an excellent way to add to your overall income when building wealth for retirement. But, does rental income affect pension?

Renting is more than just leasing out a couple of apartments for annual paychecks. Renting can help you save, gain tax benefits, and help you capitalize on the lucrative nature of your property. 

These are the reasons why many Australians take this step, and it doesn’t take much convincing to follow the trend.

However, as the property market is booming, it has not missed the attention of government agencies, especially the ones in charge of pensions, Centrelink.

Therefore it is wise to know if and how your rental income will affect your pension. And the answer is yes—rental income does impact your pension. So, read on to find out how!

* Updated 27 March 2023

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How does rental income affect my pension?

In the Australian assets test for pension, your rental income matters like your main house’s value, but your principal home is left out. 

This is where you have resided for at least two months or more and two more hectares of space with a condition that the property remains under a single title.

Anything that causes you to collect money or do business about your property automatically becomes real estate.

So, your pension managers will evaluate your real estate value from time to time. The valuations vary over time as properties only increase in value, and this increase will affect the rent payments you would be collecting. 

Also, it would be best if you informed your pension managers of any changes. Now, if you imagine holding any information back, you are wrong. Ownership checks are conducted to compare land titles with your claims. 

Any form of foul play has serious penalties, especially if your claims are more than the real value. Individuals with false claims will either receive reduced payments, no payments or need to refund past fees.

Do property maintenance costs affect my pension?

Does rental income affect 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.

There are peculiar cases for individuals who give out their rooms on a short-term basis, like lodging and boarding. 

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 forHow much counts as income
Lodging only70%
Lodging and breakfast50%
Lodging and all meals20%

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.

Does rental income affect pension every time?

Does Rental Income Affect Pension? 

The answer is no—rental income does not affect pension every time, not when you are in care. 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 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.

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