Deeming Rules

Understanding Deeming for the Age Pension

When you apply for the Age Pension, Centrelink uses “deeming rules” to work out how much income you earn from your financial assets.

This system might seem confusing at first, but it plays a big role in deciding whether you qualify for the Age Pension — and how much you’ll be paid each fortnight.

This guide explains what deeming is, why it’s used, what counts as a deemed asset, what’s exempt, and how you can manage your investments to make the most of the deeming rules.

What Are Deeming Rules?

Deeming is a way Centrelink estimates the income you earn from your financial investments. Instead of looking at the exact interest or return you receive, they assume your money earns a standard rate of return.

These standard rates are called “deeming rates” and are set by the Australian Government. The idea is to make the Age Pension fairer, simpler, and more predictable — and to stop people moving money around just to qualify for a higher pension.

Why Does Centrelink Use Deeming?

Without deeming, Centrelink would need to check every bank account, share dividend, managed fund, and other investment each time you report your income. This would be complex and inconsistent.

By using standard rates, the system:

• Makes the process simpler for both Centrelink and pensioners
• Encourages people to invest wisely without losing their pension benefits
• Closes loopholes for manipulating investments to reduce reportable income

Which Financial Assets Are Deemed?

Deeming applies to most financial investments. These include:

• Money in bank accounts, term deposits, and cash management accounts
• Shares, listed securities, and managed funds
• Bonds and debentures
• Some superannuation pensions (account-based income streams)
• Loans made to family members or trusts
• Money in friendly societies
• Certain overseas investments

For couples, financial investments are combined and the deeming rates applied to the total balance.

What Is Not Deemed?

Not all income is deemed. Some assets and income streams are assessed differently or are exempt from deeming altogether. Examples include:

• Real estate (e.g., rental income is assessed as actual income)
• Private companies or businesses you actively run
• Some structured settlements or personal injury payments
• Lifetime or life expectancy annuities purchased before 20 September 2007
• Account-based pensions that started before 1 January 2015 and have not changed significantly

It’s important to understand these exceptions — they can make a big difference to how your income is assessed.

Current Deeming Rates (2024–25)

As of 1 July 2024, the deeming rates remain frozen until 30 June 2025:

Situation	Lower Rate	Upper Rate	Threshold
Singles	0.25% up to $64,200	2.25% above $64,200	$64,200
Couples	0.25% on first $106,200	2.25% above $106,200	$106,200

These thresholds are updated each July and rates are reviewed periodically by the government. For the latest, check Services Australia.

Example on How Deeming Works

Let’s look at a simple example for a single pensioner with $120,000 in financial assets:

• The first $64,200 is deemed at 0.25% = $160/year
• The remaining $55,800 is deemed at 2.25% = $1,255/year

Total deemed income: $160 + $1,255 = $1,450/year. Centrelink adds this to any other income you have to work out your pension payment under the Income Test.

How Deeming Affects Your Pension

Centrelink applies both the Income Test and the Assets Test when calculating your Age Pension. The test that results in the lower payment determines how much you get.

Because deemed income may be higher than your actual income (for example, if your bank accounts earn only 1%), you might receive less pension than you expect. But the same rules apply if you earn more — you keep the extra earnings, and they don’t affect your pension unless they exceed the deeming assumptions.

How the Commonwealth Deems Income from the Sale of a Family Home

For Age Pension and Residential Aged Care means testing, your family home is generally exempt from the Assets Test as long as you (or your partner, or a “protected person”) live in it.

This means you could live in a house worth $400,000 or $4 million — and it wouldn’t directly affect your pension. But if you sell that home and the proceeds become part of your bank balance, they become assessable assets — and deeming rules apply.

When Does Deeming Apply to Sale Proceeds?

When you sell your family home, the money you get is counted as a financial asset — unless you plan to use it to buy another principal home within a certain timeframe.

Here’s how it works:

• If you plan to buy another home: The proceeds (up to the value of the original home) can be exempt from the Assets Test for up to 12 months. But they are still deemed as income during this period.
• If you do not plan to buy another home: The proceeds are counted as an asset immediately and deemed under the normal rules.

This can have a big effect on your Age Pension rate because both the Assets Test and the Income Test can reduce how much you receive.

The 12-Month Exemption Rule

If you intend to buy, build, rebuild, repair or renovate another principal home, you may get an Assets Test exemption for up to 12 months (sometimes extended to 24 months in special circumstances, like building delays outside your control).

Example:

Mary sells her house for $800,000 and plans to buy an apartment for $600,000. For up to 12 months, that $600,000 is exempt from the Assets Test — but it is deemed as income for the Income Test.

Any remaining amount not used to buy the new home (e.g. the extra $200,000) is counted as an asset immediately and deemed.

How This Affects Your Age Pension

Your Age Pension is worked out under both an Income Test and an Assets Test — whichever results in the lowest payment is what you get.

So, selling your home can:

• Push your assessable assets above the threshold — reducing your payment under the Assets Test.
• Increase your deemed income — reducing your payment under the Income Test.

For many people, this can mean a sudden drop or cancellation of their pension, even if they plan to buy another home soon. That’s why it’s important to plan ahead and understand how long the exemptions and deeming will last.

What About Residential Aged Care Fees?

Selling your family home can also affect how much you pay for Residential Aged Care. Here’s how:

• When you move into permanent Residential Aged Care, the value of your former home may be exempt (or capped) for means testing if your partner or a protected person remains living there.
• If you sell your home, the proceeds become a financial asset and are counted in full for your Income and Assets assessment — meaning they can increase your Means Tested Care Fee and Accommodation Payment obligations.
• The sale proceeds will be deemed as income for the Income Test portion of the Means Tested Care Fee too.

For example, some people sell the family home to pay a Refundable Accommodation Deposit (RAD). While that can be a good strategy, it also means any leftover money is assessable and deemed.

What If I Rent Out the Home Instead?

Instead of selling, some people keep their family home and rent it out to generate extra income to help pay aged care fees or living costs.

If you rent it out:

• The home becomes an assessable asset for the Assets Test (no longer exempt).
• The rental income is counted under the Income Test — and is real income, not deemed.

This can be more complex than selling — and you’ll need to weigh up tax implications, maintenance costs, and whether your family wants to keep the property long-term.

Tips for Managing the Impact

Here are a few practical tips:

• Talk to a specialist aged care financial adviser if you’re thinking about selling the family home — they can help you understand the real impact on your pension and aged care fees.
• If you plan to buy another home, keep good records to prove your intention to Centrelink.
• Use the Home Sale Proceeds Exemption carefully — stick to the timelines, or you could lose the asset exemption.
• Be aware that any excess proceeds above what you use for your new home are immediately assessable.
• Check how your bank accounts and investments are structured to avoid surprises with deeming thresholds.

What Happens If I Don’t Report the Sale?

You’re legally required to tell Services Australia if you sell your home and get proceeds that affect your means test. Failing to update your details can lead to overpayments, debts, or even penalties.

You usually have 14 days to report changes in your assets or income. This includes deposits into new accounts, paying for new accommodation, or gifting money to family.

Remember:

• The home is normally exempt when you live in it — but sale proceeds are not.
• If you plan to buy another home, you can get an exemption from the Assets Test for up to 12 months, but deeming still applies.
• Talk to the experts and plan ahead to make sure you stay eligible for the support you need — and to avoid any unexpected reductions to your payments.

Deeming and Couples

For couples, the total value of combined financial assets is used. The thresholds are higher for couples because they share living expenses.

If only one partner is eligible for the Age Pension, the same rules still apply to their share of combined financial assets.

Deeming and Account-Based Pensions

Many retirees draw a regular income from superannuation through an account-based pension. If you started your pension on or after 1 January 2015, it’s deemed like any other financial asset.

If your pension began before 1 January 2015 and you have been receiving a means-tested pension continuously since then, special rules may apply — your income may be assessed under old rules, not deeming.

This is one reason why financial advice can be valuable — the right structure may help maximise your Age Pension entitlement.

Are There Any Strategies to Reduce Deemed Income?

While you must declare all financial assets honestly, you can legally manage how your investments are structured. Here are a few tips:

• Pay down debt: Using savings to reduce non-deductible debts may lower your financial assets.
• Home improvements: Money spent on your principal home is exempt from deeming.
• Prepay expenses: For example, prepaid funeral plans may be exempt within limits.
• Review account-based pensions: Some annuities may be treated differently — get advice.
• Keep good records: Ensure Centrelink uses correct balances when calculating your deemed income.

It’s essential to get independent financial advice before making significant changes.

Keeping Centrelink Updated

It’s your responsibility to report changes in your financial situation. Centrelink uses data-matching with banks and the ATO, so undeclared assets are likely to be discovered eventually.

You should update Centrelink if you:

• Open or close an account
• Sell or buy shares or managed funds
• Change your account-based pension
• Make large loans or gifts

Your pension may be adjusted if your deemed income changes significantly.

Common Misunderstandings

Many retirees get caught out by the deeming rules. Here are a few myths:

• My bank interest is only 1% — that’s all Centrelink counts? Incorrect. They will apply the deeming rates, not your actual rate.
• My partner’s assets don’t count if I’m claiming alone? Incorrect. Combined assets are used for couples.
• I don’t need to report money lent to my kids? Incorrect. Loans to others are deemed as financial assets.

Where to Get Help

The deeming rules can be complicated, especially when investments are involved. Always:

• Check your details regularly in your Centrelink record
• Use the Services Australia deeming calculator
• Talk to Centrelink’s Financial Information Service — it’s free
• Seek advice from a licensed financial adviser who understands retirement income streams

Final Thoughts on Deeming

Deeming is a vital part of how your Age Pension is worked out. Understanding the rules can help you make the most of your money, structure your assets wisely, and avoid surprises. It’s not about hiding assets — it’s about knowing how the system works so you can plan for a more secure and stress-free retirement.

At OMS, we’re here to help you navigate these rules, understand your entitlements, and build confidence in your retirement years. Don’t be afraid to ask questions — with the right guidance, you can make the system work for you.