Assessing house and curtilage 108-04070030
Expand allExamples of exempt real estate
Table 1
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Example |
Description |
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1 |
Additional information on effective use of productive land This is the test applied to ascertain whether customers are entitled to have more than 2 hectares allowed as curtilage, a concession introduced on 1 January 2007. The only property it can be applied to is the title on which the home sits that exceeds 2 hectares (5 acres) in size. It may sometimes be evident that the test is or isn't being met. On other occasions, investigation and assessment may be required with the resources of local staff (knowledge of the area), Complex Assessment Officers (assess actual income), or a valuation to (assess potential income). If there is income from the real estate, this is assessed under the Income Test. If the test is not being met, the customer is assessed under the private land use test and may have access to 2 hectares of curtilage subject to it being used for domestic purposes only. The aim of the extended land use test is to indicate whether the customer is making effective use of productive land to generate income, taking into consideration their capacity. This still applies when the property is being sold and under contract if settlement is likely to be more than 3 months away. Unlike the private land use test, this means there is no requirement that the land be used solely for private or domestic purposes and in fact the opposite is intended. A pensioner can satisfy the effective land use test in a number of ways:
Factors that can be taken into account when determining effective land use include:
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Examples of effective use of productive land Example 1 A customer operates a dairy farm on all of the productive land on their property, in line with land management practices within the area, and is generating an income from this activity. The effective land use test will be satisfied. Example 2 A customer who has a contract to lease their productive land to a neighbour at a commercial rate would meet the effective land use test. Example 3 When a family member, such as a child, is working the land to its potential, and the income generated from the land is a main source of income for the family, then the effective land use test will be satisfied. Example 4 Where a customer has property that is primarily bushland that has not been cleared, and the customer does not wish to clear the property where the land would otherwise be usable, the effective use of land test is not met. This is because the customer has made the choice not to use the land to capacity or use its potential to generate an income. Example 5 A person has a 5 hectare property and average blocks in the area are under one hectare. If market interest exists for subdividable blocks, and the land is zoned so it can be subdivided, and the person has capacity to arrange for subdivision to occur, then subdivision will be required to meet the effective land use test. Example 6 In some cases, the only effective use of the land may be subdivision. A farmer has wound down their 80 hectare farming operation which is located between residential lots in a small urban area. The farm has previously been partially subdivided. Where the only productive use of the land is subdivision the farmer may fail the effective land use test if they do not subdivide. Factors to be taken into consideration when determining effective use of land are outlined in the Social Security Guide 4.6.8.70 on the References page. This does not apply to rural farming areas and will only apply to rural residential areas in very limited circumstances. |
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When is a review required for effective land use test? Reviews of the effective land use test will be required for some customers depending on their individual situations. Three month review: A manual review is required where the customer has been given three months to take action to make effective use of the property. For example:
One year review needed when:
Two year review is needed when:
No review is needed when:
Text for review: When required, in Customer First, create a manual review on the Review Registration (RVR) screen and complete the fields as follows:
The review will mature on the Due Date coded in the RVR activity. Workload Management will allocate the review for manual action. |
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Examples of 20 year continuous attachment Example 1 Sam owned and lived on a 100 acre property on 1 title for 27 years and sold it 8 years ago. Sam bought the adjacent 100 acres 17 years ago, then built and moved into a new principal residence 8 years ago. Both properties were farmed as one for the period Sam owned both. In this case, Sam does not meet the 20 year attachment to the home property because it has been owned for only 17 years. If the second property was part of the family farm that had been in the family for at least 20 years, and purchased from Sam's parents, the 20 year continuous attachment would be met. Example 2 Bill's farm consists of 2 lots, separated by a creek. Bill has lived for 18 years on one lot but built a new home on the second lot 4 years ago. In this case, Bill's lots are considered adjoining (they are clearly part of the 1 farm) and therefore meets the long term attachment requirements. |
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Customer does not meet the 20 year rule but may within the next 12 months If the customer does not yet meet the 20 year continuous attachment requirement for the extended land use test, the length of time they have lived on the property should be ascertained. If they will meet the 20 year rule within the next 12 months a manual review should be set for that time to check if the customer meets all the other criteria for grant of the extended curtilage concession. Where it will be longer than 12 months before the customer meets the 20 year rule, the customer or their representative should be advised to contact Services Australia and request the extended curtilage concession once they have reached the 20 year attachment. The Process page provides details on how to set this review. |
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Example of lease income received from water rights attached from exempt real estate Barry is receiving lease income from water rights attached to his property. Barry does not receive any other income from the property. The Gross lease income and allowable deductions incurred in earning the income will be recorded on the RE screen for the property. |
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7 |
Exceptions to land being held on one title Three exceptions exist to the rule requiring land adjacent to the principal home to be held on one title document. Under the 3 exceptions land held on more than one title document can be treated as if it were held on the same title document as the person's dwelling-house. The exceptions are:
The 3 exceptions apply to income support recipients who are seeking an exemption from the assets test under the private land use test and the extended land use test. Exception 1: The dwelling-house is located on both blocks of land. This exception requires the dwelling-house structure to be located on both blocks of land. Example: if the second block of land (on a separate title) includes an extension that was made a number of years ago and is connected to the main dwelling-house, then the second block can be treated as if were held on the same title document. This exception does not extend to structures that are separate, or not attached, to the dwelling-house. Example 1: If the second block of land (on a separate title) includes farm machinery sheds, separate to the dwelling-house, then the second block cannot be treated as if it were held on the same title document. Example 2: If the second block of land (on a separate title) includes a separate dwelling-house, then the second block cannot be treated as if it were held on the same title document. Exception 2: Both blocks are protected under a law of the Commonwealth, State or Territory because of its natural, historic or Indigenous heritage. This exception requires a legal restriction being placed on a person that requires both blocks of land to be treated as a whole. That is, the restriction means that the second block is not capable of being sold separately. Example: A second block of land (on a separate title) includes a native garden, and the dwelling-house and the native garden are together formally protected under law. If the protection means that the second block is unable to be sold separately then the second block could be treated as if it were held on the same title document. Exception 3: The alienation (sale) of one of the blocks of land without the other will seriously undermine the function of the house as a dwelling. This exception means that without considering the other block of land the house would be unable to perform:
Example: If a septic tank or the main supply of water from a bore is (and originally was) located on an adjoining block of land, and it is not reasonable to expect that these functions can be relocated to the dwelling-house block, then the second block can be treated as if it were held on the same title document. The structure of the house and the essential housing related infrastructure should have been in place for a reasonable amount of time for the income support recipient to gain access to the exception. An income support recipient cannot access this exemption if they have made alterations to the structure of the house and essential housing related infrastructure since 8 May 2006 that previously existed on a single title. |
Examples of assessing real estate as an asset
Table 2
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Example |
Description |
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1 |
Assessment of land, rooms, and buildings including dual occupancies If property is used purely for commercial purposes, it is assessable even if part of a property on 1 title of less than 2 hectares and should be included and coded as part of the customer's business assessment. However, if it is used partly for domestic purposes then it is exempt. Examples: A room set aside for a doctor's surgery is assessable, but a home office also used for non-work purposes is exempt. Land that is being farmed precluding any other use is assessable, but grass where children play and on which farm animals graze, is exempt. Where a dual occupancy building was paid for by the customer or their partner and it is rented to a person other than a near relative (or is available to rent), it is assessable. However, if it was paid for by someone else (for example a relative who wanted to live nearby) or it is vacant and not available for rent permanently (for example a holiday rental is not available over winter), or it is occupied by a near relative, then it is exempt. For example, a customer's principal home is on a two-acre property and the customer paid for the construction of a small two bedroom cottage in the same title. If the cottage is rented to a distant relative, the cottage is an assessable asset and only the customer's principal home and surrounding land is exempt If a customer owns 2 units in the same apartment block, it is not possible to exempt one under the dual occupancy rules. |
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Example of grandfathered savings provision for real estate from 1 January 2007 Example 1 Don's house is on a 1 hectare title. Don also owns the adjacent half hectare title and uses both for domestic purposes. As Don is on payment immediately prior to 1 January 2007 both titles are included in the curtilage. From 1 January 2007, this situation continues. Don's real estate assessment is grandfathered and both titles remain exempt from the assets test. If Don's payment is cancelled after 1 January 2007 and it is not restored, the grandfathering status is lost so that if Don later reclaims, only the 1 hectare title on which the house sits is exempt and the second title is assessable under the assets test. Example 2 Tom is receiving Carer Payment (CP). Tom's home is on a house block and the adjoining blocks are also owned by Tom, which are private use only. The total land area is less than 2 hectares and not included in Tom's assets. If Tom's CP ceased and Age Pension was claimed with no break in payment, the savings provisions will continue to be applied. |
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Transition period backdating provisions from 1 January 2007 to 30 June 2007 During the transition period, a new or existing customer can have their payment backdated if they qualify under the extended land use test to have the area of land on the same title document as the principal home exempt from the assets test. The transition provisions can be applied between:
Special circumstances The discretionary nature of the special circumstances provisions makes it difficult to give a precise list of factors that should be taken into account when considering whether the provisions should be applied. There is usually a combination of factors that makes a situation unusual, unforeseen or exceptional. The decision to apply the special circumstances provisions should be based on an individual's circumstances. In general terms, the decision maker should determine if there are any circumstances that exist for the person or their nominee that would warrant the application of the special circumstances provisions during the transitional periods. Some factors that should be taken into account when determining if special circumstances exist are:
New claimants New income support recipients who qualify for the concessional assets test treatment under the extended land use test, and have a social security payment payable on the date of making the claim, may have their claim backdated to the later of:
Existing customers who receive an increase For existing customers who receive an increased entitlement as a result of the 1 January 2007 exemption to the assets test, may have their increase in payment backdated to the later of:
Existing customers with a decrease in entitlements For existing customers who receive a decrease in entitlements as a result of this measure, the date of effect is to be the date of the decision. No overpayments will be raised unless the income support recipient has fraudulently misrepresented their circumstances. |
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Land purchased secured over land and an insurance policy A customer borrows money to buy a block of land. The lender secures the borrowing by a charge over the land. In addition the lender secures the borrowing against an insurance policy owned by the customer. The charge over the insurance policy is a collateral security. A charge or encumbrance for the benefit of a third party, or a collateral security, is sometimes called an excluded security. A collateral security is a secondary agreement, supported by money or property, which is additional to the principal security for the same loan. The value of the insurance policy is not reduced by the amount of the charge. The value of the block of land is reduced by the value of the charge. |
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A customer has a charge secured against both their farm and principal home A customer has a charge of $100,000 secured against both their farm and principal home located on the one property title. The home and adjacent land are not used in the primary production. The value of the farm is $180,000 and the value of the principal home is $60,000. The gross value of the farm and principal home combined is $240,000. ($100,000 X $180,000) divided by $240,000 equals $75,000 This means the net asset value of the farm is $105,000 ($180,000 minus $75,000). |
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Examples of single and multiple title rules being applied Single title Example 1 Don's house is on a 1 hectare title. Don also owns the adjacent half hectare title and uses both for domestic purposes. Don is on payment immediately prior to 1 January 2007 so both titles are included in the curtilage. From 1 January 2007, this situation continues because the savings provision applies to Don and both titles remain exempt from the assets test. Don's payment is cancelled after 1 January 2007. If payment is not restored, the savings provision is lost. If Don later reclaims, only the one hectare title on which the house sits is exempt and the second title is assessable under the assets test. Example 2 Debbie's house is on a 1 hectare title. Debbie also owns an adjacent half hectare title and uses both for domestic purposes. However, Debbie is not on payment immediately prior to 1 January 2007 and the eventual date of grant is after this. Only the 1hectare title on which the house sits is exempt and the second title is assessable under the assets test. Example 3 A customer owns a multiple title property where less than 1 acre (including the existing home) is on a separate title. The septic holding tanks for the home are on the home block and the absorption lines are on the larger separate block. In this case the absorption lines are essential infrastructure for the house as a dwelling, so the second title is exempted also. Multiple title Example 1 A pensioner has owned a farm on three adjoining titles (Blocks A, B and C) for more than 20 years. The farmer lived on Block A (100 hectares) for 10 years and built a new house on Block C (150 hectares), which the farmer has lived in for 10 years. In this case the long-term continuous attachment has been met. John's house physically extends across 2 titles. Both titles can be treated as one and will be exempt irrespective of the size or value, providing John qualifies for the extended land use test. Example 2 A farmer owns land on 2 titles separated by a block of land owned by someone else. The titles are treated and recorded as 2 different properties. If the 2 titles were separated by a road only, then it would be treated and recorded as one multiple title property. For additional information on title documents, see Assessing and coding real estate detailsv. |
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Amalgamation of titles Example 1 A customer lodges an application for a planning permit with council. The council requires amalgamation of titles, where existing titles are less than 100 hectares. If the planning permit was for a purpose that does not increase the ability of the property to generate income, for example extensions to their home, the effective land use test will not be met. If the permit increases the ability to generate income, the effective land use test will be met and the whole title will be exempt provided all criteria are met. Example 2 A property previously on 2 titles with a house on each title was amalgamated prior to 9 May 2006. Customer lives in 1 house and the other is rented. As the titles were amalgamated prior to 9 May 2006 the whole of the land is exempt. The second house (building only) is an assessable asset. Example 3 A customer has a vacant lot next to their rental property. The combined value is $500,000 prior to amalgamation of titles. The customer decides to amalgamate the titles to reduce their assessable assets. The value of the new title is $400,000. If the customer has made no other gifts in the current financial year and has not gifted more than $30,000 in the rolling five year period, the deprivation would be $90,000 ($500,000 minus $400,000 minus $10,000 = $90,000). |
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Extended land use test and partnered couples The qualifying customers must have a 20 year continuous attachment to the property as their principal home (allowing for temporary absences of less than 12 months). In addition, customers can 'inherit' this concession if they:
There is no limit to the number of times the inherited concession can be passed on to new partners as long as they are on payment and continuing to reside on the property. |
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The effect on primary production apportionment If the extended land use test applies then the home and curtilage amount allowed may be greater, and this will change the primary production apportionment calculations. The exempt principal home and curtilage is not included in the primary production aggregation calculation, neither is any liability relating to the principal home. The effect is that the net value of the whole title will be exempt. Where the whole title is exempt under the extended curtilage provisions, it is not included as a primary production asset, any liability relating to the home and curtilage is not included as a primary production liability. |
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Additional information on aged care and granny flat issues The extended curtilage provisions do not change any of the rules for granny flat rights, life interest, vacation of home or deprivation/gifting. |
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Water licence income from property not owned by customer Mark receives income from his water licence on a property that he does not own. The value of the licence will be recorded on the OAS screen, and the Net income (Gross income less allowable deductions) will be recorded on the OIN screen. |