Age Pension and CGT implications of caravanning around Australia for 12 months

Will the home stay an exempt asset for Age Pension purposes?

For Age Pension means testing, the principal home is generally an exempt asset, but homeowners have lower asset-test thresholds than non-homeowners. This means their Age Pension is reduced sooner depending on their assets.

A person is treated as a homeowner if they (or their partner) have a right or interest in the home they live in that gives them reasonable security of tenure. The definition of “home” is broad and includes houses, units and even caravans and boats.

If you temporarily vacate your principal home, for example, to travel for an extended period, you are generally treated as still being a homeowner for up to 12 months, provided you intend to return. During this time the home continues to be exempt under the assets test. Once the 12-month period is exceeded, you are usually treated as a non-homeowner and the home’s value becomes assessable under the asset test.

So, for a 12-month caravanning trip, where you keep the home and intend to move back in, the home will generally remain an exempt asset and your homeowner status is unchanged. Your caravan itself is an assessable asset, and you should tell Centrelink about its value and any other changes in your assets or income.

What if you rent the home while you’re away?

If you rent out the home while you travel:

• The home can still remain exempt for up to 12 months under the temporary vacation rules (assuming you intend to return)
• However, the net rental income will be assessed under the Age Pension income test, which may reduce your rate of pension.

You should keep good records of rental income and deductible expenses and notify Centrelink within 14 days of starting or stopping the rental arrangement.

CGT and main residence exemption if you later sell

Capital gains tax (CGT) is a separate issue. Your main residence is generally exempt from CGT. When you move out, you can choose to keep treating the property as your main residence for CGT purposes, even if you’re not living there.

Other factors to consider include:

• If you do not use the home to produce income (for example, you leave it vacant while you travel), you can continue to treat it as your main residence for an unlimited period, so the full main residence exemption can still apply on sale
• If you do rent it out, you can generally treat it as your main residence for up to six years per absence period. This is commonly called the “six-year rule” or “temporary absence rule”. 

For a 12-month trip, most people can still claim a full main residence exemption on sale, whether the home is left empty or rented out, as long as the usual conditions are met and no other property is nominated as their main residence during that period.

Practical take-aways

• A 12-month caravanning trip may not jeopardise the Age Pension exemption for your family home, but you must still report changes in your income and assets
• Renting the home may improve cash flow but can reduce your Age Pension due to assessable rental income
• For CGT, the absence rule means your home can often remain fully exempt from CGT when you sell.

Because these rules are technical and your broader financial position matters, give us a call before you hit the road.