Everything you need to know about working while on the age pension
There is good news for pensioners in the recent announcement that the $80-a-week Work Bonus is to be extended until the end of next year. This has led to many asking questions: Can I rent out part of my house? Or can I take up a small business, such as producing goods for sale, or even breeding pets?
The answer is generally yes, but knowing how the pension rules work is essential if you are to make the best of your financial situation. First, you need to understand that pensioners are tested on both an asset test and an income test, and the one that gives the least pension is the one that Centrelink uses.
Knowing how the pension rules work is essential to making the most of the extension of the $80 a week Work Bonus.Credit:Tanya Lake
Let’s think about the income test. For a single person, the first $190 a fortnight is exempt income, but this includes the deemed income on financial assets such as bank accounts and superannuation. Assets of $270,000 are currently deemed to produce an income of $190 a fortnight. Once this figure is exceeded, every additional dollar earned loses $0.50. For a couple, the exempt income cut-off point is $336 a fortnight – it would require $470,000 of deemed assets to reach this figure.
The Work Bonus allows pensioners to earn more, without a negative effect on their pension. Until recently, pensioners could earn an additional $150 a week from employed work or from their own business.
But an extra allowance of $80 a week has just been extended, so pensioners can make a total of $230-a-week exempt income. Centrelink states: “Eligible income means from employment or active participation in self-employment. Active participation means you’re doing work that involves effort, such as bookkeeping or lawn mowing.”
You can claim deductions for costs needed to earn business income, depreciation of business assets, and for employee superannuation. You can’t claim deductions for costs such as donations, borrowing costs, superannuation for sole traders or business partners, tax agent’s fees, depreciation, or instant asset write-offs claimed under the small business entity concessions.
Pensioners can make a total of $230 a week exempt income under the Work Bonus extension.Credit:Greg Newington
As for renting out part of your house, there is a very detailed explanation of the issues available online. In most cases, only 70 per cent of the rent received for a room will count towards the income test. However, if you can demonstrate that the expenses to provide the accommodation are higher and/or you have a mortgage, the amount of assessable income can be reduced further. Just be aware that renting out part of your home has the potential to cause many problems, especially if a granny flat is involved.
Most states have tightened up the laws regarding tenancies, and most of them favour the tenant. It may be difficult to evict a tenant, and the tenant may have the right to insist on you making certain improvements to the property. Tenants may also have the right to bring a pet. Tread carefully.
It’s important to also consider the interaction between the income test and the asset test.
For example, a pensioner couple with $720,000 of assessable assets would be asset tested and receive $322.30 each as a fortnightly pension. But because they are asset tested, they could have a combined income of $2140 a fortnight and still retain the same pension. If their financial assets were $700,000, the deemed income on that would be $534 a fortnight, which would allow them to earn a further $1606 a fortnight without reducing their pension. The Work Bonus rules do not apply to them.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Investors should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. Email: [email protected]
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