I am 66, married and a self-funded retiree. I have an investment property bought 20 years ago in my name solely, for $80,000, and now wish to sell it to my youngest son. I propose to sell it to him for a generous price of $280,000 and provide vendor finance at 3 per cent interest, which is similar to bank interest. I intend to stipulate that he repays us the outstanding balance from bank finance in five years. I have renovation costs, purchasing costs and the like to offset against the capital gains tax (CGT) calculations. My questions are: I understand that technically I still own the house via the mortgage, however, do I incur a capital gains tax liability as at date of contract? Is it better to register the mortgage or just register a caveat? Are there any other aspects I should consider? J.W.
You and your son will have expensive problems! If you sell a property for less than market value, the state government wants its stamp duty and the federal government wants its capital gains tax, both calculated on the market value at the time and not on your generous price.
![The state government will still expect stamp duty at full market value.](/web/20170107015929im_/http://www.smh.com.au/content/dam/images/g/r/3/6/w/k/image.related.articleLeadwide.620x349.gtd55x.png/1483410657608.jpg)
So even if you give your son the property, you are taken to have received its market value at the time. If the property is worth, say, $350,000 on the market, then stamp duty comes to $11,240 while, for CGT, you will need to add 50 per cent of the excess above your cost base to your taxable income this financial year.
You should obtain a valuation from a professional valuer, or work out the market value yourself using reasonably objective and supportable data, such as the price paid for a very similar property sold at the same time in the same location, and make sure you keep a record of the source of your information.
If your son is prepared to wait to receive the property via your will, after your wife has taken your shoes to Vinnies, he will save on stamp duty and you save on CGT, but that could be another 30 years or more. In the meantime, if he pays you the 3 per cent rental yield that you are prepared to accept, he will get the property for $162 a week or $8400 a year.
I always suggest registering the mortgage, which also helps protect the family assets should your son's marriage break up and his assets need to be sold.
I am 61 and on the disability support pension. My preservation age is 66. Will it be more financially beneficial for me to remain on the DSP or go onto the age pension at 66? Does everyone on DSP have to go onto the age pension? Also, I have a small amount of about $75,000. At preservation age, is the amount in super added to the assets for Centrelink purposes irrespective of whether on the DSP or the age pension? At the present time super is not considered towards my asset figure for Centrelink. Will this change at preservation age? I own my home. E.M.
When you reach your age pension age of 66, both pensions pay the same amount and both are taxable. For both, your super becomes counted by the assets test, which continues to ignore your home and the first $250,000 in assets (that figure will have risen by then).
The income test ignores income deemed to be earned by roughly $150,000 in cash, super and other financial assets that are subject to deeming, at current deeming rates. All the figures, including deeming rates, will be higher in five years' time.
Its your choice whether to switch to the age pension at 66. Whichever you choose, some things don't change, including assessment of your blindness, if applicable, your concession card and access to the "work bonus" that ignores the first $250 a fortnight of work-related income.
If you transfer to the age pension, you won't need to have medical reviews, or attend a job capacity assessment while, if you want to travel outside Australia, the age pension's rules can allow for longer holidays before payments are reduced.
If you elect to stay on the disability support pension, you will retain access to the pensioner education supplement if you're studying (although the 2015 budget proposed abolishing this) with its non-taxable, non-means tested payment of $31.20 per fortnight for singles; also the higher rate of mobility allowance of $130 a fortnight, untaxed, if you are currently receiving it. (However, you cannot get the mobility allowance if you are receiving a funded package of support from the National Disability Insurance Scheme.)
Before you make a decision, check with any external disability service providers if you will still be eligible for the services or concessions you currently receive, and make an appointment with Centrelink's Financial Information Service.
I am 70 and my wife 71, both retired and the only two members of our self-managed super fund, set up in the mid 1980s with both receiving a pension. I have not worked since the end of 2013. My wife has not worked for about 10 years and has about $1.4 million-1.5 million in her account. I have in my account sufficient funds above $1.6 million, to be able "to move" funds into her account and get it up to $1.6 million. After the proposed changes in superannuation next July, the difference between $1.6 million and the balance in our accounts will be in the accumulation phase and subject to 15 per cent tax. Apart from our home, nearly all our assets are in the SMSF. Do you see any means by which we could get her account up to the magic $1.6 million figure. I have no grumbles with the principle of the $1.6 million cap on funds in the pension phase, other than while we have sufficient funds in the SMSF to have a total of $3.2 million, we can't get it all in the pension phase. D.I.
You can't actually transfer money between member accounts in a superannuation fund, other than 85 per cent of deductible contributions made in the previous financial year, a process known as "splitting". Otherwise one fund member needs to withdraw money, gift it to another member who then makes a contribution, if they are under 65 or over 65 and working.
Since neither of these options are available to you, you are unable to effect a transfer of super benefits into your wife's super account.
However, all is not lost and there may be no need to maintain an accumulation account. Let's say you have $2 million in your personal account as at June 2017. If you withdraw $400,000 and invest it in joint accounts, and earn 5 per cent on the money, you will each have $10,000 in assessable income. This is well below the tax-free general concession of $18,200 and, if any of this consists of franked dividends, you can claim a rebate of unused franking credits.
When comparing the tax liability of a fully taxed superannuation fund, with that of personal investments, you can achieve income of around $39,000 in your own name before you end up paying more than 15 per cent total tax, including 2 per cent Medicare (and even more if eligible for a Seniors Australian & Pensioners Tax Offset). Again, assuming a 5 percent return, this allows you to invest over $750,000 in each name and still not be worse off when compared to an accumulation fund, ignoring franking credits in both cases.
I am 72 and currently have two self-managed super funds. One with a balance of $1.2 million (100 per cent taxed component) and the other with a balance of $600,000 (100 per cent non-taxed component). I have been living off minimum fund withdrawals plus self-employed consultancy work and investments outside super, which put me into a marginal tax rate of 32.5 per cent. In 2016-17, I also expect to receive a capital gain from the sale of a property. My intended strategy for this financial year is: 1. As I can meet the work test of 40 hours within 30 days, and have no salaried employment, I can contribute $35,000 as a personal deductible contribution to a third superannuation fund in the accumulation phase. 2. Roll-out $180,000 from one of the two SMSFs in pension phase to add to the $35,000 contribution – now all accumulation. From which fund should the $180,000 be taken? 3. Take out a further $20,000 (or whatever is appropriate just before June 30, 2017) from one of the SMSFs so that the balances in pension phase do not exceed $1.6 million. Do you judge this to be appropriate? R.R.
It might be a neater approach to consider placing your $35,000 concessional contribution into your larger fund, maintaining its 100 per cent taxable component. Assuming no further change in your total funds by June (i.e, withdrawals will match the fund's growth), you will have some $1.835 million in super benefits, or $235,000 in excess of the pension cap.
I am generally in favour of converting as much taxable component to tax-free component as possible. This for two reasons, it minimises the potential "death tax" of 15 per cent on any remaining taxable component and it acts as insurance in case any desperate future Government decides that Peter Costello's 2007 move to waive all tax on super for the over 60s was a little over-generous.
So, come June, withdraw $180,000 from your larger fund and use it to make a non-concessional contribution into your smaller fund. In both cases, commute each pension. make your contribution and restart your pension, taking advantage of the rule that a pension commencing after June 1 does not need to make a pension payment that financial year.
To avoid running a non-segregated fund, rollover $235,000 from your larger fund and place it into a third, accumulation, fund, leaving $1.6 million across two pension funds. Depending on your level of personal tax, you might find it beneficial to close this down after you retire and invest the funds outside of super.
Errata: On November 27, reader CS referred to land jointly bought pre-September '85 with his wife. If they built their house before September 20, 1985 (which wasn't specified), then both land and house are pre-1985 assets. After a divorce, where the financial agreement is formally registered and obtains court approval, then assets can be transferred without losing their pre-1985 status.
If you have a question for George Cochrane, send it to Sunday Money, PO Box 3001, Tamarama, NSW, 2026. All questions answered. Helplines: Financial Ombudsman, 1300 780 808; Centrelink pensions, 13 23 00.