Foreign property and the Age Pension: what Centrelink actually counts

For Australian retirees who own property outside Australia — whether inherited from family in the country of origin, purchased before migration, held as an investment, or used as an overseas holiday home — the Age Pension treatment is straightforward in principle but significant in impact. Centrelink assesses foreign real estate on the same basis as Australian investment property: the asset value is counted in the assets test and any rental income is counted in the income test. There is no exemption for the property being located overseas, and there is no grace period after selling.

The assets test: full market value, converted to Australian dollars. Foreign property is counted at its market value, converted to Australian dollars, and added to the assessable assets pool along with every other investment asset. The same $3 per fortnight reduction in pension for each $1,000 of assets above the relevant threshold applies, regardless of whether the property is in Glebe or Greece. The periodic review obligation sits with the pensioner: Centrelink expects owners to notify of material changes in value, and exchange rate movements can alter the Australian-dollar value of a foreign property without any transaction occurring. A property in a currency that has appreciated against the dollar may cross a threshold and reduce pension entitlements without the owner selling a brick.

Centrelink uses Commonwealth Bank exchange rates to convert foreign-currency asset values and income to Australian dollars for means-test purposes. Conversion typically uses the rate at the assessment date for assets, or the rate over the relevant assessment period for foreign income. For high-value foreign assets, exchange-rate movements between assessments can produce material assessment changes even where the underlying foreign-currency value is unchanged.

The income test: net rental income counts. Where a foreign property generates rental income, the net rental income after legitimate property expenses — local management fees, maintenance, local property taxes, and the like — is counted as ordinary income for the Age Pension income test. This is the same treatment that applies to Australian investment properties. Foreign taxes paid on the rental income may generate a foreign income tax offset for Australian income tax purposes, but for Centrelink income test purposes, the assessment is of net income after deductible expenses, converted to Australian dollars.

Selling foreign investment property: is there a proceeds exemption? When an Australian pensioner sells their Australian principal home and intends to use the proceeds to purchase another principal home, the sale proceeds are exempt from the assets test for up to 24 months under the principal home sale proceeds provisions. No equivalent exemption exists for foreign investment property. The cash proceeds from a sale of foreign real estate become a financial asset immediately — subject to deeming under the income test and counting in full under the assets test from the date of receipt. For pensioners considering selling, the timing implications are real: prior to sale, the property counts at asset test value; after sale, the cash counts in full and is deemed.

International information sharing: is disclosure optional? The disclosure position has changed materially over the past decade. Australia is a signatory to the OECD Common Reporting Standard, which came into effect for Australian financial institutions in 2018, and participates in automatic exchange of financial account information under FATCA with the United States. These regimes mean that financial institutions in participating countries share account information with Australian tax and social security authorities. Foreign property transactions — particularly settlements through foreign banks and legal systems in participating jurisdictions — generate information trails that can be matched against Centrelink and ATO records. Non-disclosure of foreign assets has become substantially riskier: where it is detected, Centrelink calculates debt based on the full period of underpayment, with interest and penalties potentially applying.

The practical implication is that the question is not whether to disclose but how to manage disclosure correctly — and, for complex holdings, whether the ongoing reporting and compliance costs are proportionate to retaining the asset.

Australian capital gains tax on disposal. When an Australian tax resident sells foreign real estate, Australian capital gains tax applies to the gain, since CGT assets include property wherever it is situated. If the source country also taxes the gain, a foreign income tax offset may apply to reduce the Australian tax payable, subject to the applicable tax treaty and offset rules. For property held in countries without a bilateral tax treaty with Australia, there is a real risk of economic double taxation even with the offset mechanism. The interaction of CGT, foreign tax, and Centrelink means testing on a significant foreign property disposal typically warrants specialist tax and financial advice coordinated in advance of any decision to sell.

What does a concrete example look like?

Consider an Italian-Australian retiree who inherited a property in Italy valued at approximately €300,000 — around $500,000 Australian dollars at current exchange rates — which is rented to a local tenant. Gross annual rental income is €18,000 (approximately $30,000 Australian dollars). After local property expenses and Italian property taxes, net income is approximately $25,000. Italian withholding tax of around $5,000 generates an Australian foreign income tax offset.

For Centrelink: the $500,000 property value is counted in full in the assets test, and the $25,000 net rental income is counted in the income test. Depending on the retiree's other assets and income, the combined effect on the pension could be tens of thousands of dollars per year in reduced entitlements. The ongoing currency exposure means that a shift in the AUD/EUR exchange rate changes the Australian-dollar value of both the asset and the income without any change in Italian conditions.

This situation calls for coordinated advice across the Centrelink, tax, and estate planning dimensions — particularly if the property is likely to be retained for years and may eventually be inherited by Australian-resident family members.

What are the practical priorities?

For pensioners with foreign property, the immediate actions are current and accurate reporting to both Centrelink and the ATO, and a review with a Centrelink-specialist financial adviser of the quantified impact on current and future pension entitlements. For larger holdings, a specialist cross-border accountant is appropriate for the tax dimension. For properties in jurisdictions without bilateral tax treaties with Australia, or in jurisdictions where clear title and valuation are difficult, specialist legal advice in the source country is typically necessary.

The hold-or-sell decision for foreign investment property is genuinely complex. Centrelink and tax considerations run in one direction; family sentiment, property management practicality, currency exposure, and estate planning goals may run in another. The right answer depends on individual circumstances — but the analysis should include a clear picture of the Centrelink impact, which is often larger than owners anticipate when they first run the numbers.

Sources

• DSS Social Security Guide 4.6.6.20 — Overseas real estate, partner's share of a business & assets not readily accessible
• DSS Social Security Guide 4.3.8.30 — Income from real estate
• DSS Social Security Guide 4.6.3.90 — Exempting the principal home (sale proceeds, homes sold on or after 01/01/2023)
• DSS Social Security Guide 4.3.6.50 — Arrears, embargoes & exchange rates for overseas income
• ATO — List of CGT assets and exemptions
• ATO — Automatic exchange of information guidance (CRS and FATCA)