My husband and I are both professionals in our mid-30s with steady rising incomes. Our combined income is $180,000 a year. We have personal and credit card debts of $195,000, including a $65,000 car loan. We are in the process of selling our home (which will leave us with $50,000 profit) and moving to a blue-chip area. We are not sure whether to pay off all our debt (or reduce as much as possible) with the proceeds from the sale of our house and rent in the meantime, or bank the sale proceeds in a high-interest account whilst continuing the monthly minimum repayments on the debt. I feel this is our opportunity to wipe the slate clean and start over. What would you recommend?
I recommend you use the proceeds to get rid of the debt but it is absolutely critical that you take some advice on budgeting and start to get your finances under control. If you don't do this you will find yourself with a truck load of debts again and you won't be able to sell a house to get you out of it.
My wife and I will turn 65 shortly. Will we be entitled to the aged pension? Our income comprises a British pension entitlement of about $12,000 a year and a pension from our self-managed super fund of $30,000 a year. We own our own home ($650,000 value), cars and other possessions valued at about $100,000.
A couple can have $950,000 in assessable assets before losing eligibility for a part pension the family home is not included in this figure. For the income test, the cut off point is $65,572 a year. On the information provided you would qualify easily but you should take advice because the income from your super fund may have a non-assessable component. Keep in mind that personal items such as cars and furniture should be valued at second-hand market value, not replacement value.
My husband and I are both 61 this year and have $200,000 in superannuation. We both still work. My husband is self-employed and I work four days a week. We borrowed $80,000 in 2005 to buy $60,000 Australian shares and $20,000 international shares. These shares have not done very well and with what we are paying in interest for this loan we may just break even. Should we sell these shares and invest this money elsewhere? What about capital-gains tax?
You certainly won't be paying capital-gains tax if you sell managed funds that have made a loss, but the major issue is where you would invest the funds if you withdrew them. There would be insufficient money to buy a property, not that I would recommend you do that if there were, and cash is not a good investment long-term for people who may have 25 years yet to live. If you are prepared to take a long-term view you should get better returns by hanging in there.
I bought a property in January 2000 and rented it out straight away. It is the only property I have ever owned. In September 2000 I went overseas for work and stayed there for seven years until January 2007. I moved into the property when I got back to Australia. Do I still have to pay capital gains tax (CGT) on the whole seven years it was rented out even though I was overseas for work and couldn't live there?
As it was bought first as a rental you cannot take advantage of the six-year rule so CGT will be assessed on a pro-rata basis. Therefore, if you owned it for 11 years and it was rented for seven, you would pay CGT on 7/11ths of the gain, less 50 per cent discount because you have had it for more than a year.
Advice is general and readers should seek their own professional advice.
Contact noel.whittaker@whittakermacnaught .com.au, follow him on Twitter @noelwhittaker. Written questions to: Ask Noel, Money, GPO Box 2571, Qld 4000, or see moneymanager.com.au/ask-an-expert.
Frequently Asked Questions about this Article…
Should we use the proceeds from selling our home to pay off personal and credit card debt or keep the money in a high‑interest account while renting?
The article recommends using your home sale proceeds to pay down or eliminate debt rather than simply banking the money. Clearing debt gives you a fresh financial start, but it’s absolutely critical you also get budgeting advice and put systems in place—otherwise you risk accumulating a new load of debt and ending up back where you started.
We have $195,000 of debt (including a $65,000 car loan) and expect $50,000 profit from a sale. Is wiping out debt with the sale proceeds the best move?
Yes — using the $50,000 proceeds to reduce or clear your debts is the recommended option in the article. The key caveat is to follow that up with budgeting help and financial control, because paying off debt without changing spending habits can simply delay future debt problems.
How do asset and income tests affect eligibility for the Australian aged pension for couples?
According to the piece, a couple can have up to $950,000 in assessable assets before losing eligibility for a part pension (the family home is not included in that assets test). For the income test, the relevant cut‑off is $65,572 a year. Personal items like cars and furniture should be valued at second‑hand market value, not replacement cost.
With a British pension of $12,000 and a self‑managed super pension of $30,000 a year plus a $650,000 home, would we likely qualify for a part aged pension?
Based on the figures given in the article you would likely qualify easily. However, you should seek specific advice because income from your super fund may include a non‑assessable component that affects the means test, and valuations of personal items need to be accurate.
Should I sell underperforming Australian and international shares that I bought with a margin loan, and will I pay capital gains tax (CGT)?
The column notes that if you sell managed funds at a loss you won’t pay CGT on that loss. The bigger consideration is what you would do with the proceeds — there may not be enough to buy property, and cash isn’t usually a good long‑term investment if you have decades ahead. If you can take a long‑term view, staying invested may deliver better returns than selling now.
Do I have to pay capital gains tax if I bought a property as a rental, lived overseas for seven years, then moved back in?
Yes — because the property was originally purchased as a rental it doesn’t qualify for the full six‑year absentee exemption. CGT is assessed on a pro‑rata basis. For example, if you owned it for 11 years and it was rented for seven of those years you would pay CGT on 7/11ths of the gain, and you’d still be eligible for the 50% discount if you owned it for more than 12 months.
How is the six‑year rule applied when a property was originally bought as an investment and later became my home?
The article explains that the six‑year rule generally applies when a property that is your home is rented out for up to six years and you remain owner. But if the property was bought first as a rental (not as your main residence) you cannot use the six‑year rule. Instead CGT is apportioned based on the actual period it was income‑producing versus owner‑occupied.
Where can I get personalised financial or tax advice relevant to these issues?
The article stresses that the advice provided is general and that readers should seek their own professional advice. It also lists contact options for Noel Whittaker: email noel.whittaker@whittakermacnaught.com.au, Twitter @noelwhittaker, or mail to Ask Noel, Money, GPO Box 2571, Qld 4000.
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