Monday, January 17, 2011

Loans taken out against the home

“What happens if a pensioner takes out a $100k loan out against the home?”

As with salary sacrifice, negative gearing etc. Centrelink treats the loans completely different to the ATO. Under Centrelink rules, loans taken out and secured over a person’s home are not counted as a liability, no matter what purpose they have been taken out for.

If the money was taken out and placed into the bank – any account, savings, term deposit etc. –
Centrelink will:

• Add the $100k to the pensioner’s assets for the purpose of the assets test
• Add the deemed income to the income test, and
• The interest paid on the loan will not be taken into the account to reduce the deemed income.

Of course if – say - $60k was used for renovations, then only the remaining $40k will be used to adjust the Centrelink assets and income values. However, again no recognition will be made of the interest being paid on the $100k loan. That is, your ‘deemed income’ will not be reduced by these interest costs.

This is different if the loan was taken out against an investment property. In this case the asset value of the investment property is reduced by the property mortgage. However any loan amount taken out against the ‘family’ home, for the purpose of this investment property, would not be taken into account in a similar manner to above.

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