Personal finance expert George Cochrane answers your questions...
I'm trying to establish whether we'd benefit from the proposal in the 2017 federal budget to encourage Baby Boomers to downsize their dwellings. This would allow $300,000 from the proceeds of selling the family home to be placed in superannuation. Would this $300,000 be subject to the assets test for the age pension and the income from it to the income test? My wife and I are retired, debt free and we both receive the following fortnightly payments: $325 in age pension from Centrelink, $1500 from my defined benefit account, $570 from my Vicsuper account with a balance of about $292,000, $400 from my wife's Hesta account with balance of about $202,500, $50 from combined bank savings of $78,200 and combined dividends from shareholdings of about $17,500. Since retiring 10 years ago we've been enjoying an adequately comfortable lifestyle from the above payments. What would be the advantages and disadvantages of downsizing as proposed? B.K.
The option only affects homes sold after next June 30, also you must have owned the home for 10 or more years and be over 65. You will then have 90 days from the "date of disposal", presumably the exchange of contracts, to making the downsizing contribution.
The money released by downsizing will be counted in the means test for the age pension. Photo:
The $300,000 is classified as a non-concessional contribution and can be made even if you are retired and your total superannuation balance already exceeds $1.6 million i.e. if money sourced elsewhere could not otherwise be placed into super. However, each contributor would still be subject to the $1.6 million "transfer balance cap" and could not rollover amounts above that into a tax-free pension fund, but must keep it in a taxed accumulation fund.
It doesn't sound as though this would affect you, nor does it sound as though you really need the money. And since the cash, once in your bank or super fund, would be counted by Centrelink's means testing, thus reducing your age pension, I suggest procrastinating for a decade or two!
I am 78 years old, living with my 46-year-old daughter who is on a disability pension, in my house north of Sydney with an estimated value $1.4 million. I have had to raise $100,000 from Bendigo Bank through the Homesafe Wealth Release, the reason being my husband, who had a severe personality disorder, committed suicide this year in July. He had lost his business in the 1980s and our house. I supported him financially as he would not work after a back operation, he left no money and no superannuation. I have shares managed by a broker, which I inherited from my parents, currently worth about $500,000. Some shares were sold from time to time and dividends plus a small pension were my only income to support my husband and daughter. If I had separated from my husband he would have been entitled to a share of my home. He was often violent and hospitalised for his mental condition.
My problem is that I wish to provide for my daughter after my death and my will covers this with my second daughter acting as trustee along with my solicitors. Ultimately I will need to buy a two-bedroom unit in the same area as my daughter will have support equal to about $800. I have used part of the money from my Homesafe sale to clear all debts, do some repairs on my property and pay some living expenses, and now have about $28,000. As my investments are just below the cut-off I get a $49 fortnightly pension and benefits. My house is my best investment and I would like to stay another year and draw more from my shares so money I live on will not deplete my Homesafe money; a unit, although inevitable long-term, is a loss.
Also, tax implications are not easy for me to understand. My broker is only interested in protecting my share portfolio which he has done well for many years. I am unsure if selling a percentage of my house to Homesafe is classed as income or a future debt owing. I would be grateful if you can direct me to some assistance. N.H.
The remaining $28,000 you have from having sold what appears to be about 7 per cent of your home to Homesafe, is counted as an asset for the assets test and subject to deeming for the income test.
Given you have significant investments, I would have preferred that you sell shares rather than equity in your home. That would have allowed an increase in age pension, whereas your increase in cash will result in a small decrease in pension. I'm not specifically recommending it, because I'm not aware of all necessary facts, but you should be aware that you usually have the option of buying back the share of the house that you sold to Homesafe. This would reduce your shareholdings, and increase your age pension, but the process is probably expensive.
As long as you are healthy, and able to continue living in your house with your daughter, there is no need to buy your daughter an apartment unless you want to get her established and comfortable on her own while you're alive. If the latter, you would need to discuss with her whether she would want to live alone, or possibly consider living in a group home with other disabled people for companionship. If so, you and she can start by contacting the NSW Department of Family & Community Services, which operates some group homes, that it describes as typical suburban houses with four to six bedrooms, located in a local community and staffed by disability workers. Call the northern Sydney FACS office on 1800 905 535. If you Google "group homes for disabled adults", you'll also find some private alternatives e.g. House With No Steps.
You indicate an undescribed trust will be set up via your will. Your daughter is likely to benefit most if the trust is a "special disability trust", assuming she meets the eligibility requirements. The latter requires the beneficiary to be living in an institution or group home where care is provided for people with disabilities with government funding, or alternatively, if the person had a sole carer, then the carer would qualify for the carer payment or carer allowance. Information is provided on the Department of Human Services website and, if you think a special disability trust would be useful, then Google the topic, and also make an appointment with Centrelink to explore it further.
I started receiving a part UK state pension in March this year. This is paid into my bank account each month in Australian dollars, presumably at the exchange rate operating on that day. Will I be in compliance with ATO Ruling TR93/13 if I simply add up each month's dollar amount and enter the total in my tax return and thereafter apply the 8 per cent to that total to get my deduction? B.G.
In short, yes, assuming you have read the bit about contributions made before and after 1975. For a simple approach, use the exchange rate applicable when each pension payment was received, although the Tax Office will accept the average annual exchange rate for that financial year. For 2016-17, that was ₤0.6199/$A1. See the ATO's Foreign Exchange rates on its website.
By George Cochrane
05 November 2017