By George Cochrane
I am in my early 40s and working as a professional three days a week. I'm also the sole parent of a vivacious toddler. I earn $74,000 a year, plus $12,000 from rental income (I live with a family member) along with $50 a week in child support from the child's father and Tax Benefits A and B from Centrelink. I have $170,000 in super and bought my one-bedroom apartment, now worth more than $400,000, in inner-Melbourne in 2010, lived in it for about six years before renting it for $400 a week. My 3.84 per cent investor mortgage of $148,000 costs $2085 a month. I would like to buy a two-bedroom, modest home in 2022-2023. Should I sell my apartment in the next few years to avoid Capital Gains Tax (CGT)? If possible, I would like to retain it and get a loan for a suburban townhouse, or similar, worth $600,000 to $750,000. If I work another day a week, I think I would have more stress in our lives, as I have a demanding job. A.N.
You are correct in that, if you classify your apartment as your main residence, you have six years from the date you moved out, in 2016, before CGT kicks in.
If you sell after 2022, half of the profit after capital expenses (since 2016, not 2022) will be added to your taxable income – and you are currently in the 34.5 per cent tax bracket.
If you don't want to keep the unit and the potential CGT is high, then you might as well sell it and buy a home you want and can afford.
To retain exemption from CGT, you could live in it for about six months, then rent it and move back with your relative.
The price range you mention attracts stamp duty of $31,000-$40,000, though I note that Victoria will reduce your duty by 25 per cent for existing properties (50 per cent for new ones), with land value under $1 million if the contract is signed before July 1, 2021.
If you draw down on your current mortgage to put a deposit on another home then, unless you are withdrawing money from a mortgage offset account, it will be viewed as a new home loan and the interest is not deductible until you begin to rent it.
You are relatively young and thus able to take on a long-term debt to buy the house in which you plan to live but, if you do your sums, I don't think you can afford two homes and live in one – even if you go back to full-time work.
I am aged 66 and worked as a high school teacher in the public system for 40 years. I am a member of the NSW State Super defined-benefit scheme. On retiring five years ago, I opted for a pension – currently $2177 a fortnight. Our house is valued at $2.3 million and our two adult children are independent. Recently, I have been trying to navigate the financial minefield of an unforeseen marital separation after 34 years. I am expecting a 50:50 split of assets, which would mean my pension would halve to $1088 per fortnight. My question is: am I eligible for a Centrelink part-pension if I use the money from the sale of our house to buy myself an apartment, leaving less than $250,000 in assets outside of the residence? R.A.
That's sad to hear after all those years. Yes, the money you spend on your new home would be ignored by Centrelink.
Your cash amount of $250,000 would be deemed to earn $176 a fortnight, or $4565 a year, which would be added to your defined-benefit pension of some $26,300 (reduced by any tax-free component in the pension) – giving you an age pension of more than $400 a fortnight, or $10,400 a year.
I am on the age pension and my wife is receiving a carer's payment from Centrelink. We do not own our own home and are renting from the Department of Housing. We have just inherited $150,000. What is the best way to invest this money without having to take any risks, as well as not affecting our Centrelink payments?
I'm not sure whether you receive the age pension, or a disability support pension. The fact that your wife gets the carer payment, which is paid at the same rate as the age pension, implies she is not old enough for the age pension.
She would receive the payment if she gives constant care to someone who has a severe disability, illness, or is aged and frail.
The payment is income and assets tested, which means that, as non-homeowners, you can have $482,500 in assets before the payment is affected. Under the income test, you are allowed $316 a fortnight, or $8216 a year, before the payment is reduced.
Your $150,000 would be deemed to earn about $62 a fortnight so, unless you have a lot of money elsewhere, your payment should not be affected.
If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Help lines: Australian Financial Complaints Authority, 1800 931 678; Centrelink pensions 13 23 00. All letters answered.