ASK NOEL

I'm 61 and my only income is a disability pension. I don't have any super. I owe under $20,000 on my home, worth $300,000. It's in an area with limited employment opportunities and poor public transport so I was considering letting the house out and renting a small unit closer to public transport, hoping to secure some part-time work. I'm reluctant to sell because of current market conditions and because it was difficult to buy a home on a disability pension. If I rented the house out, would the ...

By InvestSMART · 16 Jul 2011

By InvestSMART ·
16 Jul 2011

Comments

The rental income would be assessed by Centrelink but costs such as interest, rates and maintenance would be deducted before the final figure is struck. As you can be absent from your home for up to six years without losing the main residence CGT exemption, it's unlikely that capital gains tax will be an issue.

I'm 60 and planning on retiring soon. Upon retirement, my superannuation fund will invest my funds as I direct. They offer international shares, Australian shares, cash or a mix of these. What do you suggest?

You need to sit down with your adviser and agree on an asset allocation that fits your risk profile and goals. You will need to review this on a regular basis and make adjustments as necessary. For example, if the Australian share-market roared, the proportion of your portfolio held in Australian shares may exceed your set percentage and you may then decide it's time to take profits to return your portfolio to the original asset allocation.

Noel Whittaker is a director of Whittaker Macnaught. Advice is general and readers should seek their own professional advice. Contact noel.whittaker@whittaker macnaught.com.au.

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

Will rental income from my home affect my disability pension (Centrelink)?

Yes. Centrelink will assess rental income from a property and include it when calculating your pension, but allowable costs such as interest, council rates and maintenance are deducted before they reach the final assessable figure.

What rental expenses does Centrelink deduct when assessing income from a rental property?

Centrelink generally deducts property-related costs from rental income before assessment. The article specifically mentions interest, rates and maintenance as costs that would be subtracted from the rental proceeds.

If I rent out my home, will I lose the main residence capital gains tax (CGT) exemption?

Not automatically. You can be absent from your home for up to six years without losing the main residence CGT exemption, so letting the property out temporarily is unlikely to trigger a CGT bill under that rule.

If I sell my house later when the market picks up, will I have to pay capital gains tax?

It’s unlikely, provided the sale falls within the main residence rules. Because you can be absent for up to six years and retain the main residence CGT exemption, a later sale after renting out the property would probably not incur CGT according to the article.

I’m about to retire and my super fund offers international shares, Australian shares and cash. How should I choose an allocation?

Sit down with your financial adviser and agree an asset allocation that matches your risk profile and retirement goals. The article recommends choosing a mix with your adviser’s input rather than picking options in isolation.

How often should I review and adjust my superannuation asset allocation in retirement?

You should review your allocation on a regular basis and make adjustments as necessary. The article doesn’t specify exact intervals, but implies you should rebalance whenever your holdings have drifted away from the agreed target.

What does rebalancing look like in practice and when might I take profits from shares?

Rebalancing means selling some assets that have grown beyond your target allocation and buying others to return to your chosen mix. For example, if Australian shares ‘roared’ and now make up a larger share of your portfolio, you might take profits to restore your original allocation.

Who provided this advice and should I get personal financial advice?

The commentary is from Noel Whittaker, a director of Whittaker Macnaught, and it is general in nature. The article advises readers to seek their own professional financial advice for personal circumstances.