MY WIFE, 59, and I, 69, have a property in Melbourne valued around $1.3 million on which we owe $280,000. We plan to retire and apply for the aged pension. We have two sons who would be able to take up the responsibility of repaying the outstanding loan on the property and become joint owners with us. We know that stamp duty is payable. This arrangement is to allow us to continue to live in the existing house without making the repayments, while receiving Centrelink payments. We do not have any other cash savings. How will this arrangement affect our Centrelink payments? A.M.
Being over 65, you are already eligible to claim an age pension. Your wife will be eligible in about six years time at age 65 (if born between January 1, 1949, and June 30, 1952), or 65? (if born between July 1, 1952 and Dec 31, 1953).
If you keep your home in your name, the value is not counted by Centrelink's assets test. If you give half to your sons, worth some $650,000, then this amount will be treated as "deprivation" and all but $10,000 will be counted by the means tests for five years. On the other hand, if you give the entire house away but retain the right to live in it for life, then this is known as a "granny flat interest" and it will not be counted by the means tests. If your sons can repay the loan for you, then I suggest they do so since gifts from children are not deemed to be income but you should keep the house in your name to maintain its full exemption from Centrelink's means tests. You should then prepare your wills so that your sons will receive the house after you have shuffled off your mortal coils.
Looking ahead, all four of you should be aware that as people age they usually need to sell their house to raise an accommodation bond for low-care hostel accommodation, so
I wouldn't plan to give the entire house away or your sons may have to later sell it to pay any such bond.
Deductions build up for children
I am 86, virtually living off my assets. With the seniors tax offset I am virtually paying no tax. If I sell a home unit, partly mortgaged, at what rate do I pay CGT? B.O.
Take your selling price and subtract from this all costs such as agent's fees, legal fees and so forth. Then subtract your purchase price, including all your buying costs such as stamp duty, valuation fees, and mortgage establishment fees. This is your total capital gain, which can further be reduced by any capital costs you have encountered for such things as renovations that you have not previously claimed against income. If the property has been an investment property for the whole time you have owned it that is, you have never lived in it as your principal residence and you have owned it for longer than 12 months then take 50 per cent of the capital gain and add it to your assessable income. Be sure to use an accountant to maximise all possible deductions.
Kiwi questions home costs
I am 59, intending to work full-time to the age of 65 and am an Australian citizen, living here since 2001. I intend to retire in Sydney and have no dependents, am debt-free, earning $95,000 per annum and I salary sacrifice 45 per cent of my salary. At my age I don't intend to buy in Sydney and am happy to live in rental accommodation as a retiree. Am
I able, and would it be wise, to sell my mortgage-free home in New Zealand (valued about $NZ300,000 [$240,000]) and invest this money into my Australian super, or should I sell on retirement, or beyond, as I may realise a higher capital gain? K.D.
You can sell your NZ home any time you want. Residents of Australia are liable for CGT on assets worldwide so your NZ home would be liable for CGT. Of course, you may be able to claim it as a principal residence for all, or part, of the time you owned it.
Assuming CGT will be payable, and since you plan to work another six years or so, then by waiting until you retire before selling the home, you should be in a lower tax bracket and thus pay less CGT.
Another factor to consider is that you can place up to $450,000 as a non-deductible contribution into super in one financial year while aged under 65. You should also be able to place up to $25,000 as a deductible contribution, thus offsetting a tax liability, or possibly more, depending on the rules at the time. If you do this at, say, 64 you can plan a strategy to sell the house and place the entire proceeds into an Australian super fund before beginning a tax-free pension. The rules are different once you turn 65.
Yet a third factor involves currency rates: if it turns out you want to bring money over a few months before turning 65 at a time when the exchange rate is murderously against you, all your plans could be undone. You might do best to seek professional advice.
If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW 2026. Helplines: Banking Ombudsman, 1300 780 808 pensions, 13 23 00.
Frequently Asked Questions about this Article…
How will making my adult children joint owners of our home affect our Centrelink aged pension?
If you give half the house to your sons, that gift (about $650,000 in your example) is treated as “deprivation” and, except for the first $10,000, will be counted under Centrelink’s means tests for five years. By contrast, if you keep the home in your name it remains exempt from the assets test. Also be aware stamp duty is payable on transfers. The article suggests having your sons repay the outstanding loan while you retain ownership, and then arranging your wills so the house passes to them later.
What is a granny‑flat interest and will it protect my home from Centrelink means tests?
A granny‑flat interest is when you give the property to someone but retain the right to live in it for life. According to the article, that type of interest is not counted by Centrelink’s means tests, so it can preserve the home’s exemption from the assets test while you continue to live there.
If I give the whole house to my children now, could that cause problems later for aged‑care bonds?
Yes. The article warns that as people age they often need to sell their home to raise an accommodation bond for low‑care hostel accommodation. If you give the entire house away, your children may later need to sell it to pay such a bond. For that reason the columnist recommends not planning to transfer the entire property away while you may need it.
If my children repay the mortgage for us, will Centrelink treat that as income?
Gifts from children are not treated as income by Centrelink. The article recommends having your sons repay the loan while you keep the house in your name so you retain the home’s full exemption under the assets test. However, an outright transfer of ownership triggers deprivation treatment, which affects the means tests.
How do I work out capital gains tax (CGT) when selling an investment property?
Calculate CGT by taking the selling price and subtracting selling costs (agent and legal fees), then subtract your purchase price plus buying costs (stamp duty, valuation, mortgage fees). That gives your capital gain, which can be reduced by capital improvements you haven’t previously claimed. If the property was an investment for the whole ownership period and held for more than 12 months, you can apply the 50% CGT discount and add the taxable amount to your assessable income. The article advises using an accountant to maximise allowable deductions.
If I’m an Australian resident and sell my New Zealand home, do I pay Australian CGT?
Yes. The article states Australian residents are liable for CGT on worldwide assets, so your NZ home would be subject to Australian CGT. You may be able to claim a principal residence exemption for all or part of the ownership period. The columnist also suggests waiting until retirement (when you may be in a lower tax bracket) could reduce the CGT payable.
Can I put proceeds from selling a house into my Australian superannuation to reduce tax?
The article notes you can—while under 65—place up to $450,000 as a non‑deductible contribution into super in one financial year under the bring‑forward rules, and also make deductible contributions (the article cites $25,000 as an example). Rules change after 65, so timing matters. It also warns about currency exchange risk if you’re transferring foreign proceeds and recommends seeking professional advice.
What practical steps should I take before transferring property or selling an overseas home?
Keep the home in your name if you want to protect its exemption from Centrelink’s assets test; consider asking your children to repay the mortgage rather than transferring ownership; prepare or update your wills so the property passes to your children later; consult an accountant for CGT calculations and a financial adviser for super contribution strategies; and factor in currency exchange timing if selling overseas.
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