THE ASSETS TEST RULES

Under a home equity conversion agreement, where the amount borrowed is unspent:

+ The first $40,000 is not counted as an asset for 90 days; and

+ The excess over $40,000 is counted as an asset immediately.

Where the amount borrowed is spent, depending on what the funds are used for, further assessment may be necessary.

If the amount is spent on non-assessable items (i.e. consumable goods and services, repairs or improvements to the principal place of residence) no further assessment is necessary.

If the amount is spent on assessable items (i.e. a motor car, an investment or simply allowed to accumulate in a bank account) the relevant income and assets test will apply.

THE INCOME TEST RULES

If a pension claimant passes the Assets Test hurdle, the Income Test will then be applied. As discussed earlier, if the funds generated from the loan are spent on consumable items, the Income Test will have no application. Only in circumstances where the loan funds have been used to purchase a financial investment is the Income Test applicable.

Income, for social security purposes, is determined on an annual basis and converted to a fortnightly amount for calculating the fortnightly payment rate. If this test results in a lower rate of payment than under the Assets Test, then the lower pension payment will be made.

Financial investments under the deeming provisions of the Income Test are "deemed" to earn a certain rate of income no matter what rate of income is actually earned.

 Click here for current Centrelink Asset and Income Tests amounts.