GeersSullivan Q&A
Posted on 29th October 2015 by Ashley Dawson
Q I read that under the six year rule an owner-occupied unit would not be subject to any capital gains tax even though it was rented out.
What would happen if I rented out my unit for five years and then moved back in? Can I live in the unit for a couple of months, then apply the six-year rule again and rent it out for a second time?
How long would I need to live in my unit each time before I started another rental period under the six-year rule?
A Each time you live in the property you would revive the six-year rule.
Just keep in mind that you must be actually living in it – this means having your bills sent to that address and doing all other things that a normal resident would do.
Q If I salary sacrifice in this financial year, is my employer obliged to put that amount into my super before the end of June, or can it be transferred in the next financial year?
A There is no requirement for the employer to have it in the super fund’s bank account by the end of the financial year – in fact, a large proportion of employer contributions are credited to the member’s account in the following financial year.
This can cause issues if you’re trying to maximise your concessional contributions as you could find that you under contribute in the current year and over contribute in the next. It would be worthwhile talking to your pay office to confirm when the money may be paid, so you can decide what action to take if necessary.
Q I am 64, and recently read that contributions can be made to a pension fund without opening another fund (accumulation).
If this is true; can I reinvest 75% of my compulsory pension withdrawal requirement from/to my pension fund? Will the ATO accept this?
A You cannot contribute to a superfund account in pension mode through an industry or retail type fund; a new super account would need to be established. If you have a self-managed super fund (SMSF) however the fund can have an accumulation member component, and a pension member component.
Contributions made to a SMSF will be credited to the accumulation component of your member account. An actuarial certificate will be required each year to ensure that the tax free income claimed is correct. A SMSF can have a maximum of 4 members so we often find one member of a SMSF is in Pension mode or transition to retirement whilst the other is in accumulation mode due to differences in age and/or their super account components.
Q My partner and I are 26, and our annual income including super is $135,000 – I work full time and my partner is currently working part time, looking for full-time work.
Our annual expenses total $42,500 including rent. We have $230,000 in a high-interest account, but are being charged a lot of additional tax on this. We want to own a home one day but don’t feel inclined to pay the prices people are asking at the moment.
We are thinking about moving a lot of this money into shares, but have no idea of the best way to do this, or even if that is the best approach. What are your thoughts on how we should invest our savings?
A You need to be aware that with moving the money into growth assets like shares, you will pay capital gains tax if you make a profit. You could also face a loss if the market is down at the time you decide to buy a property.
If you’re earning 3.5 per cent on your $230,000, the interest should be around $8000, and the maximum tax you would be paying based on your taxable income being between $80K – $180K should be around $3000. I think that’s a fairly small price to pay for the certainty of having the money available when you decided to buy.
Q. My mother has dementia and I am her full-time carer. She is on the single aged pension full rate, has no savings but owns her house outright. I live with her.
What will happen if I can longer care for her and she needs to go into a nursing home?
Will I be able to stay in the house, as I have nowhere to go and I am not claiming the carer’s pension?
A Aged-care expert Rachel Lane says the former home would be exempt from your mother for aged-care purposes if you are considered to be a “protected person”.
A protected person is a spouse or dependent child, a carer who has been living in the property for at least two years who is eligible to receive an Australian income support payment or a close relative who has been living in the property for at least five years who is eligible to receive an Australian income support payment.
You do not have to claim an Income support payment to meet the criteria, you just need to be eligible to receive it.
The former home will be exempt for your mother’s pension for up to two years after she moves into care. Beyond this period the house would be assessable as an asset and she would be considered a non-homeowner for pension purposes.
An indefinite exemption can be applied to the house and any rent received if your mother pays for her cost of aged-care accommodation by daily charges and rents the home.
If you have any pressing tax questions you need answered, please do not hesitate to contact any of our expert team at the office on (08)9316-7000.