Where should we stash property sale cash?


Q. My wife and I are about to sell an investment property before building a new home three years from now. We lived in the house for eight years and it has been rented for two years. We assume there will be some tax due on this property – is this correct?

We hope to receive $250,000 from the sale and would like to know the best option for holding this sum – a three-year term deposit seems the best option. We can also save an additional $800 each week.

A. If you lived in it after purchase and have not claimed any other home as your principal residence since you moved out, it should be CGT exempt, but if you are living in another property you own now, which you are treating as your principal residence, there will be CGT payable on any increase in value from when you moved out. Your accountant will be able to do the calculations for you. For a short term such as three years, bank deposits are the best option but you will need to take a view on where interest rates are going. If you fix your rate for three years, and then rates rise, you will lose out. It may be a good option to have some money on term deposit and some at call.

Q. In a recent column regarding superannuation when forecasting how much a person could have, your numbers appear to be based on the premise that there is no break in super payments once someone begins work, but many people won’t have received super all their working lives – especially older workers. In other cases, people have lost money when changing accounts or being charged administration fees.

A. Keep in mind my main message is to highlight the importance of starting as soon as possible, and ensuring the asset mix is appropriate. As you point out, every situation is different, which is why it’s important to have ongoing advice. Hopefully this will enable the people seeking this advice to avoid high exit fees or excessive administration fees.

Q. I will turn 65 mid January 2015, am retired, and my only income is $62,000 gross from shares. My husband is 73 and earns $27,000 gross from his share portfolio. Considering the superannuation changes from January 2015, what advice could you give to maximise my tax savings?

A. There are two major changes coming in January. The first concerns a different treatment of the pension income test and affects only income-tested pensioners – the second relates to eligibility for the CSHC. Based on the information supplied, neither would affect your situation.

Q. Some weeks ago in one of your columns, you answered a question about reverse mortgages and Centrelink pension payments. You wrote that progressive drawdowns do not affect the pension paid. Could you please explain this again for me?

A. If a pensioner borrowed say $100,000 by way of reverse mortgage, and placed that money in the bank, it could be subject to deeming and affect their pension. However, if the same person was approved for a loan of $100,000 and simply drew it as needed, there would be no adverse affect on the pension as there would be no large sum of money sitting in the bank. In any event, given the compounding nature of a reverse mortgage, it makes good sense to draw it down as slowly as possible.

Q. I own an investment unit that I’m thinking of selling, and after paying costs, passing the proceeds of it on to my husband’s daughter as a one-off payment towards her children’s education. I accept that once I make the gift, I would have no rights on how the money is spent, or to reclaiming any of it. I have researched this idea online and it seems fraught with problems. Is there a simple way of making such a gift that does not involve paying punitive taxes, or complicated trust management? Where should I start?

A. It may be simplest to give the money directly to your step daughter to use as she wishes – as you point out, there will be a liability for children’stax irrespective of whether the money is held as trustee or in the child’s name until the child reaches 18. An easy option may simply be to talk to an adviser about putting the money into investment bonds, about which I’ve written often in this paper.

Q. I bought a unit in March 2010 on a 25-year mortgage. I am planning to buy two units to rent out for one year, then move in to one of the units. Is it possible to buy the second units when I already have a mortgage? How much money will I need to service the debt? What is the best way to find a lender for the new mortgage?

A. You can certainly buy additional properties if you have the income and the assets to service the loan repayments. I suggest you talk to your bank or a mortgage broker sooner rather than later to canvas your options.

from The Sydney Morning Herald here: https://www.smh.com.au/money/tax/where-should-we-stash-property-sale-cash-20141120-11qoci.html