Your holiday house and the Age Pension: the asset that's fully counted but pays you nothing

A holiday house is rarely thought of as a financial liability. It's where the family gathers at Christmas, where the grandchildren learn to swim, the place with decades of memories attached. So it can come as an unwelcome surprise to discover that, under the Age Pension means test, a second property you don't rent out is one of the most inefficient assets you can own — fully counted against you, while paying you nothing to live on. The Age Pension, for anyone new to the term, is the means-tested government payment administered by Services Australia, and how much you get depends on two tests: one on your assets, one on your income. This isn't a reason to sell the family weekender. But if you're an age pensioner, or about to be, it's worth understanding exactly how a second property is treated — because the cost can run to tens of thousands of dollars a year in pension you don't receive, and most people have never done that sum. This article is general information only, not personal advice.

Is your home exempt but a second property isn't?

The family home you live in is an exempt asset: it doesn't count in the Age Pension assets test, no matter what it's worth, along with up to the first two hectares of land it sits on (Services Australia, https://www.servicesaustralia.gov.au/real-estate-assets). That exemption is generous, and it's why so much retirement wealth sits quietly in the home. But the exemption applies only to your principal home — the one you actually live in. Any other real estate you own — a holiday house, a weekender, vacant land, or an investment property — is fully assessable. It's counted at its net market value, meaning the current market value of the property less any loan that's secured directly against it; Services Australia works out the share you own by taking the debt off the property's value (Services Australia, https://www.servicesaustralia.gov.au/real-estate-assets). So a $600,000 holiday house with no mortgage adds the full $600,000 to your assessable assets. One detail worth knowing: Services Australia reviews and adjusts the assessed value of residential real estate each year using indexed market data by postcode, so the figure isn't frozen at what you paid.

How is it assessed, and why is "no income" the trap?

There are two means tests, and the holiday house interacts with them quite differently. Under the income test, real property is not deemed. Deeming — where Centrelink simply assumes your money earns income at a set rate — applies only to financial assets such as bank accounts, shares, and managed funds, not to bricks and mortar. If your second property earns rent, that net rental income is counted as actual income under the income test (Services Australia, https://www.servicesaustralia.gov.au/real-estate-income). But if it earns nothing because you keep it for your own use, it adds nothing to the income test at all.

That sounds harmless, but it's the heart of the problem. A holiday house you don't rent is still assessed under the assets test at its full market value, while contributing no income to help you live. The assets test reduces your pension by $3 a fortnight for every $1,000 of assessable assets above the relevant threshold — the taper rate that has applied since 1 January 2017 (DSS Social Security Guide 4.2.3, https://guides.dss.gov.au/social-security-guide/4/2/3). Run a $600,000 property through that taper and it accounts for up to $1,800 a fortnight of lost pension — on the order of $46,800 a year — from an asset that puts not a single dollar in your pocket. (The reduction can never be larger than the pension you'd otherwise receive: once your assessable assets pass the cut-off — $1,102,500 for a homeowner couple or $733,500 for a single homeowner, effective 1 July 2026 — the pension is simply zero, and a property of this size is usually what tips people over that line.)

What comparison makes the trap clear?

It helps to picture where that same $600,000 could sit instead. Put into your family home — as renovations or improvements — it's exempt, with no pension impact at all, though the money is then locked up in the house and hard to get back. Put into an income-producing investment such as shares or a rented property, it's assessed, yes, but at least it generates cash you can live on, which offsets the pension you give up. Put into a holiday house you don't rent, it manages to be fully assessed and produce no income — the worst of both worlds. That's why the unrented second property stands out so sharply: it combines the full means-test hit of an assessable asset with the zero cash flow of a pure lifestyle possession. Our companion pieces on the family-home exemption and on income-producing investment property in retirement walk through those alternatives in more detail.

Should you keep it, rent it, or sell it?

None of this means you should sell a home your family treasures. But it does turn the holiday house into a decision worth making consciously rather than by default. Keeping it is entirely reasonable — provided you understand the pension cost and decide the lifestyle value is worth it, which for many families it genuinely is. Renting it out, even for part of the year, at least converts a pure drain into a partial earner: the rent becomes assessable income, but now the asset is paying you something towards the pension it displaces. Selling it can restore pension if the house is genuinely underused, but it isn't free of consequences, and two in particular deserve flagging.

The first is tax. A holiday house doesn't qualify for the main residence exemption from capital gains tax, because that exemption is only for the home you actually live in — a property kept for your own holidays and recreation falls outside it (ATO, https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/your-main-residence---home/eligibility-for-main-residence-exemption). So selling will generally trigger CGT on the gain, though the 50% CGT discount applies if you've owned the property for more than 12 months. The second is that the sale proceeds are themselves assessable as a financial asset — and deemed — until you redeploy them, for example into improvements on your exempt home, or into a younger spouse's super, which isn't assessed for the Age Pension until they reach Age Pension age. The one thing to avoid is giving the property away to family to get it off your assets test. Deliberately disposing of an asset to qualify for a payment is caught by the gifting (deprivation) rules: Centrelink keeps counting the gifted value as yours for five years from the date of the gift, beyond the small amount you're allowed to give away each year, so it doesn't achieve what you'd hoped — and you've given away the house as well (Services Australia, https://www.servicesaustralia.gov.au/how-gifting-can-affect-your-payment).

What do the worked examples show?

These show the cost in real numbers and the trade-offs a decision involves. They are illustrative only — not personal advice, and Services Australia determines your entitlement.

Tom and Margaret, both 70, are a homeowner couple with about $500,000 in financial assets and a $600,000 holiday house on the coast that they use a few weeks a year and never rent. On these facts, the holiday house is the difference between a near-full pension and almost none at all. Without it, their $500,000 of assessable assets sits just above the couple homeowner full-pension threshold of $499,000 (effective 1 July 2026), so the taper barely touches them and they'd receive close to the full couple rate — in the order of $45,000 a year between them. Add the $600,000 house and their assessable assets reach $1,100,000 — just $2,500 short of the couple cut-off of $1,102,500 — so the pension isn't quite zero, but it's cut right down to around $7 a fortnight, roughly $190 a year (DSS Social Security Guide 4.2.3, https://guides.dss.gov.au/social-security-guide/4/2/3; Services Australia, https://www.servicesaustralia.gov.au/real-estate-assets). On these facts the weekender is quietly costing them almost the entire couple pension every year while paying them nothing. That doesn't make keeping it wrong — but it makes renting it out, even seasonally, look very different once the number is on the table, because the rent would be assessed yet the asset would finally be earning towards the pension it displaces.

David, 68, is a single homeowner with a modest super balance and an inland weekender worth about $400,000 that he now visits only once or twice a year. On these facts he's weighing whether to sell. Selling would lift his pension, since the property is currently fully assessed while producing no income — but it isn't consequence-free. Because the weekender has never been his main residence, it doesn't get the CGT main residence exemption, so the gain since he bought it is taxable, reduced by the 50% discount as he's held it well over 12 months (ATO, https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/your-main-residence---home/eligibility-for-main-residence-exemption). And the sale money would then be an assessable, deemed financial asset until he does something with it. On these facts it is generally rational for David to map out, before he sells, both the CGT bill and where the proceeds would land — improving his exempt home, or another considered use — rather than to simply gift the cash to his children, which the deprivation rules would keep counting as his for five years anyway (Services Australia, https://www.servicesaustralia.gov.au/how-gifting-can-affect-your-payment). The sums change the answer, which is exactly why they're worth doing first.

Sources

• Services Australia — Real estate assets (Age Pension)
• Services Australia — Real estate income (Age Pension)
• DSS Social Security Guide 4.2.3 — Pensions and benefits assets tests
• Services Australia — How gifting can affect your payment
• ATO — Eligibility for the main residence CGT exemption