Ask Noel

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.