Income Test, Assets Test and Investment Property

Property is not subject to a deeming rate, it isn't called a financial asset. Instead the income test and asset test simply reflect actual income (minus deductions) and actual market value (minus liabilities).

If you are earning money from the property, whether that is rent, parking fees or whatever else, you declare the income to Centrelink and it goes on your Income Test assessment. If you don't take an income from the property (ie, it is vacant) you declare no income. This is different to the way it would be assessed if it were a financial asset, if this house was swapped for an equal value in gold bullion or stocks instead you would get a deemed income from it at deeming rates.

You are able to deduct expenses like insurance, interest on mortgages, rates and taxes. The treatment is slightly different to tax deductibility because if you have a mortgage for private purposes against that property you can still deduct the interest when filling in your Centrelink form, even though the Australian Tax Office would not call that an allowable deduction from their point of view.

If you can't calculate an exact amount of deductions for the various costs, Centrelink will generally allow a maximum deduction of one third of the gross rent received.

Capital gains realised on the property are not treated as income by Centrelink. A capital loss cannot be used to offset income from other sources. After talking to someone in Centrelink I got the impression there might be a minor loophole here, if you make a business out of renovating houses and selling them after you retire, the capital gains won't affect your income test. This is different to the way the Tax Office would look at it, if you trade in property frequently enough your capital gains profits could be treated as income instead (which is the same as "trader" status for those that trade listed securities).

The value of any real estate you own is assessed by Centrelink under the assets test. If the real estate is likely to affect your pension or allowance, Centrelink may seek a valuation from the Australian Valuation Office (AVO).

Any loan secured against the property will reduce the asset value. If the loan is against your principle residence, the loan cannot be deducted from the value of the asset. (But the principle residence is exempt from Centrelink Asset Tests anyway).