An article of yours suggested the government may value a defined benefit pension at possibly 16 times annual payment for the purposes of the $1.6 million transfer cap. To me, this seems totally unfair, especially if referred to the current government guidelines. If someone is 80 years old, their life expectancy is only a matter of a few short years.
You have a valid point but I understand the government used a flat 16 times in the interests of simplicity. If they started to adjust for age the next step would be to adjust the $1.6 million cap so that it would be higher for younger people, and less for older people. That would be an administrative nightmare.
My parents are in their 80s and reasonably healthy at the moment but the bedrooms and bathrooms in their townhouse are all upstairs. We are urging them to move while they are healthy. They are worried because they receive a part pension and think they would lose it if they downsize. The property is valued around $1.2 million. If they sell and then buy for a similar price will they be asset tested again? Also, are they allowed to gift any money?
The asset test changes will apply to all pensioners. So whether your parents move now or after January 1 the new asset test will be applied. As people who are currently part pensioners they should definitely do the numbers on what the changes will mean – it may be that their pension is lost but their health care card remains.
The gifting limit is $10,000 in a financial year and $30,000 in any five-year period. Any amount that is given above these limits continues to be counted as an asset (and deemed to earn income) for five years from the time of the gift.
Recently you mentioned that the government is looking to classify defined benefit pensions as an asset for Centrelink purposes. I am currently receiving $40,000 per year from my ESS pension and $15,000 from an allocated pension (balance $300,000). Total family income of $55,000. We currently receive about $20,000 between us in Centrelink pension. We are aged 67 and 68.
If the defined benefit pension becomes an asset, we will lose all our Centrelink pension and probably the health card.
Does anyone in government understand that we have no control over the defined benefit fund? We cannot convert it to a lump sum, we cannot spend it, and our family gets nothing when we die. This does not sound like an asset to me.
The 16 times rule is purely for the calculation of the $1.6 million tax-free limit. It does not have a thing to do with the Centrelink asset test so should not affect your age pension.
I currently have a mortgage of $200,000 and my brother also has a mortgage of $200,000.
What would happen if I move in with my brother, continue to rent out my property, and borrow an additional $200,000 from my bank to wipe out my brother's loan? Then my loan would be $400,000 and my brother would have no debt.
As my property is currently being let out as an investment property, would the interest payable on my $400,000 loan be tax deductible?
I am assuming the $200,000 you pay to your brother to wipe out his mortgage is to buy a share of the property which you will then treat as your own residence. If this is correct, the interest on the extra $200,000 will not be tax deductible as the purpose of the loan is a private one. However, if you live elsewhere and your brother continues to occupy the property, it will be an investment property as far as you are concerned and you will be able to claim the interest as long as he pays a fair market rent.
Is it prudent for a couple in their 30s with children to have their superannuation in the same super fund? What are the pros and cons for a couple using joint bank accounts?
Provided the superannuation is a well-known reputable one (and most of them are) having both your accounts in the same fund is a good idea as it keeps all your superannuation in one place. Keep in mind that a superannuation fund is in reality a structure that holds assets in a range of sub-funds. Having a joint account is simple – but there can be a drawback if the balance is fairly large and the joint owners are in different tax brackets.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: asknoel@fairfaxmedia.com.au.