Top ten social security means test FAQs of 2020

2020 was a challenging year for many, with bushfires followed by the onset of the COVID-19 pandemic. Despite the challenging environment, advisers continued to service their clients and raise interesting queries.

In this article, we share our top ten social security means testing queries of 2020 received across Challenger’s and Accurium’s Tech teams.

Any rates and thresholds used in this article are as at 1 January 2021.

1. Will the social security gifting rules apply to the following scenarios?

  • Parents paying the costs of travel for their kids to visit them during the pandemic
  • Grandparents assisting with their grandchildren’s school fees
  • Donating to charity

Social security gifting provisions generally apply where a person disposes of or diminishes the value of their assets or income and does not receive adequate financial consideration in exchange for the asset or income.

With the above specific scenarios, the DHS were contacted for confirmation of our understanding.

We have paraphrased their responses below:

  • Yes, this will be considered a gift as the parents have diminished the value of their assets (cash) and did not receive adequate financial consideration in return.
  • Yes, this will be considered a gift unless the grandparents have legal responsibility to care for the children.
  • Yes, this will be considered a gift as the value of assets have diminished and adequate financial consideration was not received in return.

2. How are overseas government pensions assessed in Australia?

Similar to double tax agreements in our tax system, Australia has social security agreements in place with certain countries. Among other things, these agreements are particularly helpful with assisting those in Australia (or the agreement country) to qualify for certain benefits from either country where they do not otherwise meet minimum residence and/or contribution requirements. For example, the ten-year Australian residency requirement to qualify for the Age Pension.

Generally, those residing in Australia who do not rely on the social security agreements to qualify for the Age Pension (i.e. have been an Australian resident for more than ten years) will have their overseas pensions assessed as ordinary income under the pension income test. Those who rely on the social security agreements to qualify for the Age Pension will generally have their Age Pension reduce dollar for dollar by the amount of their overseas pensions.

Although the above applies to many types of overseas pensions, it is important to check the agreement for each country as the assessment can be different to the above. One example we are aware of is the New Zealand Superannuation (equivalent of the Age Pension in Australia). Those who reside in Australia and receive the government pension from New Zealand, will have their Age Pension reduce dollar for dollar by their New Zealand pension, irrespective of whether they have resided in Australia for more than ten years.

There are also some special overseas payments that have their own separate assessment and these can be found in the DSS Guide1.

3. Will making regular lump sum withdrawals (for example $2,000 per month) from superannuation that is in accumulation phase be assessed as income for social security purposes?

Superannuation that is in accumulation phase is not assessed under the assets test or income test for individuals under Age Pension age. Once they reach Age Pension age, the account balance is assessed under the assets test and deemed under the income test.

Lump sum withdrawals from superannuation (in accumulation phase or pension phase) are considered capital withdrawals and are not assessed as income. How the lump sum amount is assessed depends on how it is invested. For example, clients may need to update their bank account balances with Centrelink.

Note: Lump sum withdrawals from an income stream (such as a grandfathered account-based pension) can affect its deduction/deductible amount.

4. Can an individual pay for two Centrelink granny flat interests, and how will that be assessed by Centrelink?

Centrelink granny flat arrangements can allow an individual to transfer assets to another person in exchange for a life interest or right to accommodation for life in a private residence, without deprivation/gifting rules applying.

Deprivation generally won’t apply if the individual transfers the title of their home, pays for the construction of premises on another person’s property, or purchases a property in another person’s name in exchange for a life interest or right to accommodation for life.

Where the individual transfers assets in addition to the arrangements above or pays for more  than  one  life  interest  or  right  to  accommodation  for  life,  Centrelink applies  a ‘reasonableness test’ to determine whether deprivation will apply.

If the total amount paid is not more than the ‘reasonableness test’ amount, deprivation rules won’t apply.

The ‘reasonableness test’ uses a formula to allow a granny flat interest to be valued at a different amount than the amount paid.

  • “Reasonableness test’ amount = combined annual partner Age Pension rate x conversion factor2, where:
  • the combined annual partnered pension rate is used irrespective of the person’s marital status. The combined annual partnered pension rate iscurrently$37,013.60; and
  • the conversion factor applied is based on the person’s age at their next birthday. For married couples, the age of the youngest member of the couple is used.


Margaret (age 80) sells her home and pays $150,000 to each of her two children in return for a right to accommodation with each of them. Margaret intends to move around and spend an equal amount of time with each child.

As the total amount paid ($300,000) is less than the ‘reasonableness test’ amount ($37,013.60 x 9.41 = $348,298), deprivation won’t apply.

5. Calculating the Age Pension of a couple homeowner with assessable assets of $876,000 (cut-off of $876,500), we get $39 p.a. combined under the assets test. Why are clients receiving $2,017.60p.a.?

Although the calculated Age Pension entitlement of a couple homeowner, with assessable assets of $876,000, is $39 p.a. combined, there is a minimum pension amount that Centrelink pays.

This is $2,017.60 p.a. ($77.60 p.f.) for couples combined and is made up of the energy supplement of $10.60 each p.f. and a pension supplement minimum amount of $28.20 each p.f.

For singles, Centrelink pays a minimum amount of $1,339 p.a. ($51.50 p.f.) which is made up of the energy supplement of $14.10 p.f. and a pension supplement minimum amount of $37.40 p.f.

6. Are regular payments received from a child for boarding assessable?

Generally, income received from boarders and lodgers are assessed as follows3:

SituationDescription% Treated as income
LodgingAccommodation only70%
Bed and breakfastAccommodation and breakfast50%
BoardAccommodation and meals in addition to breakfast


However, if the boarder or lodger is a family member (parent, child or sibling), income received is not assessed for social security purposes.

7. Will a funeral bond investment remain exempt in the following scenarios?

  • Its value exceeds the exempt funeral investment threshold(currently$13,500) due to investment growth
  • Funeral expenses have also been prepaid
  • If two spouses invest $27,000 in a single funeral investment, owned jointly

The Social Security Act provides that a funeral investment is exempt from means testing if it:

  • is a funeral investment that matures on the death of the income support recipient or their partner;
  • does not relate to a funeral for which funeral expenses have been paid in advance;
  • is not able to be redeemed prior to death; and
  • the individual has not invested in more than two investments and the total investment is less than the exempt funeral investment threshold(disregarding any investmentreturns).

This means:

  • The funeral bond investment can remain exempt as long the initial investment amount did not exceed the exempt funeral investment threshold at tha time.
  • The funeral bond investment would not be exempt as funeral expenses have also been pre-paid.
  • The funeral bond investment would not be exempt for either spouse as the single investment exceeded the $13,500 threshold. They will need to reduce their jointly owned investment to $13,500 for the exemption to apply. Alternatively, each member of the couple can individually invest a funeral bond investment of $13,500.

8. Is the JobKeeper payment from an employer assessed as income for social security purposes and does it get reduced by the work bonus?

The JobKeeper Payment is a subsidy for businesses significantly affected byCOVID-19. These payments are made  to the employer  to assist them with the cost of paying wages. As the individual is still receiving wages from the employer, these wages will be assessed as employment income.

The work bonus concession would then apply to an eligible individual in receipt of eligible income which include wages.

9. How will Challenger’s Guaranteed Annuity (Liquid Lifetime) –Flexible income option (commenced from 1 July 2019) be assessed for there versionary beneficiary?

Lifetime income streams, such as Challenger’s Guaranteed Annuity (Liquid Lifetime) –Flexible income option, that:

  • complies with the Capital Access Schedule (CAS)4 in the superannuation regulations; and
  • where the individual has reached their ‘assessment day’, is assessed as follows:
Assets test 60% of the investment amount assessed under the assets test until the person’s ‘threshold day’ (currently age 84with a minimum of five years). The assessment reduces to 30% of the investment amount thereafter.
Income test 60% of the regular payments is assessed. For the deferred option, no income is assessed during the deferral period.

The ‘assessment day’6 and ‘threshold day’7 are new concepts that are designed to determine when the new means testing rules will apply to lifetime income streams8 purchased from 1 July 2019. The definition is quite broad and complex, however, for individuals eligible9 to invest in Liquid Lifetime, their assessment day will be the day the income stream is purchased and their threshold day will be age 84 with a minimum of five years. An eligible reversionary beneficiary of Liquid Lifetime will inherit the primary investor’s assessment including the day the income stream’s asset assessment drops to 30%.


Ben (age 80) invests in $100,000 into Liquid Lifetime Flexible Income (Immediate payments) that pays $4,35210 p.a. (indexed to inflation) with his spouse June (age 68), as a reversionary beneficiary.

Under the social security assets test, $60,000 would be assessed upon investment dropping to $30,000 on the day Ben reaches age 85 (based on the minimum five-year period). Under the income test, $2,611 would be assessed in year one.

If the income stream reverts to June, she would inherit the above assessment. i.e. if it reverts after Ben reaches age 85, the assets test assessment for June would be $30,000 from the date of reversion. If it reverts to June before Ben reaches age 85, the assets test assessment for June would be $60,000 from the date of reversion dropping to $30,000 the day Ben would have reached 85, had he been alive (she would be about age 73 at this time). The income test assessment for June would be 60% of the regular payments at that time.

10. How are fixed term annuities assessed for social security purposes?

Unlike lifetime annuities, the Centrelink assessment of term annuities did not change on 1 July 2019, and is assessed as follows:

Assets testPurchase price – (Deduction amount x Term elapsed)
Deduction amount = (Purchase price –Withdrawals –RCV)/Term
Income test(long-term)Annual payment –Annual deduction amount Deemed
Income test (short-term)Income on current Centrelink asset value

A fixed term annuity is considered long-term if it has a term greater than five years, or greater than the investor’s life expectancy at commencement. A short-term annuity has a term of five years or less, and less than the investor’s life expectancy at commencement.

1. Current social security agreements can be accessed from DSS’s webpage –
2. Conversion factors can be found in the Social Security Guide on the Department of Social Services website at
3. Sourced from
4. CAS limits the amount that can be withdrawn or paid as a death benefit.
5. The rules link this to a period equal to the life expectancy of a 65 year old male at the commencement of the income stream which is currently age 84. This will change from time to time with new lifetables.
6. A complete definition of the assessment day provided by DSS can be found at
7. A complete definition of the threshold day provided by DSS can be found at
8. Excludes defined benefit income streams and 100%/50% assets test exempt income streams.
9. Refer to the Product Disclosure Statement which can be accessed from
10. Based on a Challenger quote as at 19/01/2021, monthly payments indexed to CPI and no adviser fees.

Related articles

29 Mar 2022

Fast Facts

This handy guide presents the key facts and figures that are useful for someone dealing with SMSFs. No need to look it up on the internet, our facts and figures guide has it all in one place. The guide covers tax, tax offsets, superannuation, social security and aged care.

26 Mar 2022

Assessment of the former home upon entering aged care

Brought to you by Challenger Tech A key consideration for many individuals when moving into residential aged care is the decision around the former home. The technical team from Challenger provide a recap of the general rules for the social security and aged care assessment of the former home as well as their application to…

SMSF acronyms

During our webinars you might hear our presenters refer to some things in acronyms or you may have heard some in general SMSF discussions and be unsure what they are referring to. The team at Accurium have put together an extensive list of the most popular SMSF acronyms. If you think some are missing feel…