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Ask Noel: if I sell my home, will my heirs pay capital gains tax?
Noel WhittakerPublished: September 19 2017 - 4:30PM
Financial expert Noel Whittaker answers your questionsI am 76 and my main asset is the family home. In the future, I will need to move to a smaller dwelling. If I sell the family home before buying a smaller dwelling (in order to avoid undue pressure to sell under a reasonable figure) there may be a short period of time when I have no principal place of residence exempt from capital gains tax.
In the unlikely (but possible) event that I died in this short time between selling and buying, is there any special provision that allows for protection for this CGT-free status?
My estate is left to my two sons and will be largely dependent on the tax-free status of the principal place of residence. I am anxious to preserve as much value as possible for them after I die.
When you sell the first property the proceeds will be eligible for the capital gains tax exemption and, I assume, will be placed in the bank. If you die before you use these funds to buy another residence there will be no capital gains tax payable by your beneficiaries as the funds in the bank have come from the proceeds of an exempt asset.
Recently you gave an answer to a couple who had willed $85,000 super to their children. You mentioned they could withdraw the super and invest in their own name to avoid the children paying tax. I am in the same position and am not sure what you meant.
There is a death tax of 15 per cent plus Medicare levy on the taxable component of superannuation that is left to a non-dependent. However, it is possible to avoid the death tax if the money is withdrawn from superannuation tax-free, prior to the death of the deceased. Obviously expert advice should be taken before this is done.
I am 60 and plan to retire in 18 months with a super balance of $600,000. I am single and own my own home. I have an investment property worth $750,000 with $200,000 owing. Which is the better scenario?
Keep it and take $200,000 from super when I retire to pay it off leaving $400,000 in super plus a rental income of $24,000 a year; or sell it and put $300,000 into super, leaving approximately $250,000 to spend and invest outside super?
If I sell it and put $300,000 (the maximum allowed) into super, would that make me eligible for a Centrelink part pension?
Obviously, the best strategy depends somewhat on the potential of the investment property, and what capital gains tax may be payable if you sell it. However, if you think the property has potential I believe your best option is to hold it, and keep the loan going. If the interest rate on the loan were 6 per cent you would still have a healthy cash surplus and would have more assets working for you as you would not have to withdraw $200,000 from super. Keeping the property also gives you the benefit of diversification.
In view of your assets you are not eligible for any age pension under the current rules, which are more likely to be tightened than loosened by the time you get to pensionable age. The downsizing proposals have no Centrelink benefits because money in super is counted for age pension eligibility.
At the age of 69, my father retired last week. Prior to that, he was working full-time. Is he still able to put in a non-concessional superannuation contribution to boost his super balance prior to going into pension stage?
Yes, provided his superannuation balance now is less than $1.6 million.
In your column in Money on August 27 you stated that a tax deduction could be made to super contributions against capital gains in the tax return from 1/7/2017.
I have worked in accounting offices for over 40 years and I understand most things with tax but this confuses me. I would have thought that the tax deduction for super contribution up to $25,000 would be against the total taxable income, not just against the capital gains tax portion.
Please enlighten me. Does it apply to anybody from July 1, 2017?
Capital gains tax is calculated by adding the capital gain to the taxable income of the investor in the financial year the sale is made. A tax deduction for any reason, including superannuation, would reduce the taxable income which, in turn, could reduce the total tax due on the total income and capital gain is included. From July 1, 2017. everybody who is eligible to contribute to superannuation can claim a tax deduction for personal contributions – the total deduction cannot exceed $25,000 a year which includes any contributions made by the employer.
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.
This story was found at: http://www.theage.com.au/money/ask-an-expert/ask-noel-if-i-sell-my-home-will-my-heirs-pay-capital-gains-tax-20170918-gyjjrt.html