Q&A – 12-month sale of home proceeds exemption
Find out what your peers are asking – based on real-life questions submitted to TechConnect.
By Stuart Sheary – Senior Technical Manager
Q: My client, Luca recently sold his home. Using the proceeds, he has bought land to build on and will use the remaining sale proceeds to fund construction costs. He already owned a caravan which he is currently living in and it sits on the land he recently purchased.
I understand Luca can only have one exempt home so will the remaining sale proceeds earmarked for construction be exempt or will the caravan where he is currently living be exempt?
A: If Luca has sold his principal home and is living in another home which he owns, he is not eligible for both an asset test exemption on the home he is currently living in and the exemption on the principal home sale proceeds.
To this end, two possible outcomes are detailed below.
1. Caravan treated as client’s principal home
A Centrelink assessment officer may determine that the caravan is Luca’s principal home. In this scenario, the caravan together with the land (up to 2 hectares) it sits on is exempt. The residual proceeds from the sale of the former home is assessable.
2. Proceeds from the sale of the home applies
Alternatively if the Centrelink assessment officer determines that the proceeds from the sale of the home exemption continues to apply, then the land purchased (up to 2 hectares) together with the residual funds earmarked for construction of the new home, will be exempt.
Under the 12-month sale proceeds exemption, the amount intended to be used to buy, build, rebuild, repair or renovate a new principal home is exempt under the Centrelink asset test for up to 12-months. It is important to note that the intention must be genuine. The exemption is ordinarily limited to the earlier of 12 months or until your client’s intention changes. Your client can request an extension of an additional 12-months in some circumstances. The exemption only applies for the assets test as the normal income test rules continue to apply on the sales proceeds. If the proceeds are placed in a financial investment, deeming applies under the income test.
If you have any questions, or would like more information, please contact the IOOF TechConnect team on 1300 650 414.
The information in this section of the website is intended for financial advisers only and is not to be distributed to clients. It has been prepared on behalf of Australian Executor Trustees Limited ABN 84 007 869 794 AFSL 240023, IOOF Investment Management Limited ABN 53 006 695 021 AFSL 230524, IOOF Investment Services Ltd ABN 80 007 350 405, AFSL 230703 and IOOF Ltd ABN 21 087 649 625 AFSL 230522 based on information that is believed to be accurate and reliable at the time of publication.