Money

Mum to lose pension after inheriting small parcels of rocky land

My mum lives in a small struggling town. My father passed away two years ago leaving no will. He had four very small parcels of land in a rocky farming area with no power or water and a small house/shop. As he did not have a will, the assets passed to my mum.

Centrelink's value of the assets is ridiculous. The house/shop is valued at $250,000 with similar properties barely able to sell for $125,000 if you can find a buyer. The blocks of land are valued by Centrelink in a similar nature. Blocks that they value at $60,000, you are struggling to sell for $25,000. My mum's pension is $321.00 per fortnight. From January 1, 2017, it will be cancelled. She now has a cleaning job and does have assets up for sale but they are unlikely to sell any time soon.

I did not think my mum would have to start supporting herself at 70 years of age.

A ministerial spokesperson advises a person's assets are assessed at their net market value. The net market value is the amount the owner could expect to receive if the asset was sold on the open market. Centrelink may arrange a valuation of a person's assets by a licensed valuer to determine an accurate asset value.

If a person disagrees with a valuation, they should contact Centrelink, which would explain the decision and if necessary arrange a further valuation. If a person still disagrees with the valuation and would like the decision to be reviewed further, Centrelink will forward the matter to a review officer. If the person believes the decision made by the review officer is incorrect, the person may appeal to the Administrative Appeals Tribunal (AAT).

People who receive a reduced rate of pension and own real estate in Australia may be able to obtain additional funds through the Pension Loans Scheme. This is available through Centrelink to part-rate pensioners and some self-funded retirees who own real estate. Under this scheme, a person who is of pension age, or the partner of someone who is, may be able to obtain a loan that will bring their fortnightly payment up to the maximum pension rate. Repayments can be made at any time or the debt can be left, including the accrued interest, to be recovered from the person's estate. The loan is secured against the value of any real estate they own.

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There are also special hardship provisions that may assist pensioners who have assets that they cannot sell, cannot be reasonably expected to sell or are in the process of selling. In order to qualify under the hardship provisions, a pensioner must be considered to be in severe financial hardship.

To be considered in severe financial hardship, a couple would have no more than $34,382.40 in readily available funds and have no other reasonable course of action to take to alleviate their hardship. A single person would have no more than $22,804.60 in readily available funds.

I made a gift of $5000 in October 2011. It has been more than five years. If I make a gift of $30,000 to my son to buy his car, will this be assessed under my asset test?

Be very careful here – any gifts in excess of $10,000 a year are subject to deeming for five years. You can either make a gift of $10,000 this financial year, and further gifts of $10,000 over the succeeding two financial years or lend your son $20,000 in addition to the gift of $10,000, and then gift $10,000 each financial year. The outcome is the same in either case as it will be treated as a deemed asset whether it be retained or gifted.

I am 41 and earn $220,000 a year. My wife is 37 and is a full-time mum to our three young kids. We have a mortgage of $800,000. My wife has a share portfolio and I have a managed fund with an interest only margin loan of $100,000, We have some spare cash but I am always torn as to whether to put this money onto the mortgage or into super or a mix of both. I am doing the latter of the three but how do I know that I am getting the balance right?

The name of the game is to maximise your deductible debt, and minimise your non-deductible debt. Therefore, if capital gains tax is not a problem, you could think about disposing of the shares, using the proceeds to reduce your home loan, and then borrowing back for more shares. At your age I think there are better options than increasing your contributions to superannuation. While you are considering your options, put all your spare cash into an offset account, which will shorten the term of the home loan.

I am trying to get my head around CGT and having your principal property exempt for six years. If I move out of my principal residence to rent it out and purchase another property (in which to live) within the six years, is the original principal residence still exempt from CGT?

The original residence will be exempt from CGT for up to six years but only on the condition that you do not claim any other property as your principal place of residence at that time. In other words, you can't have two principal places of residence at the same time.

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.

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