Question 1

Hi, my wife and I are both 72 (73 early next year) and have super balances of $160,000 and $250,000 respectively. 

We pay ourselves $1000 a fortnight each from these accounts. In addition, we each receive $881 a fortnight from Centrelink. We own our house, a car and a caravan. We have no investments or savings other than our super.

My wife’s mother is 98 and in good health. She owns and lives in her own house, which was recently valued  $1.3 million. When she eventually passes away, this property will be sold and the proceeds divided equally between my wife and her two siblings.

Assuming this doesn’t happen before we turn 75, what is likely to be the best way to invest my wife’s share and what impact would this have on her (our) Centrelink payments?

Hello,

In relation to the age pension, you are receiving close to the maximum amount. It looks like you only lose a few dollars each fortnight as you are just over the assets test.

For every extra $1000 you now get in assets, you will lose $1.50 each a fortnight in age pension.

For example, let’s say, after costs, your wife received $400,000.

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You and your wife’s age pension would then be reduced by $600 a fortnight ($400,000/$1000 x $1.50).

As a couple homeowner, you can still have $1.085 million in assets (excluding your home) and still receive some age pension.

Also remember the age pension payment and the asset test thresholds (limits) are always getting indexed over time.

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As you have indicated, if you receive an inheritance before you turn age 75, you can contribute the money to super.

If it is received after age 75, there are still plenty of investment options, depending on your goals and what you want to do with the money; for example, spend some or just save it all long term?

Shares, managed funds, ETFs and term deposits are the most common investment vehicles. From an age pension perspective, they are all treated the same.

If you have not already done so, you can also consider a pre-paid funeral or a funeral bond, which are not counted under the assets test up to certain limits.

Question 2 

Hi Craig, thanks for your excellent information. I look forward to Mondays to see what’s next.

My mother has moved into an aged-care home. We did not need to sell the house for her to do so and will keep it for family to stay in when they visit her. We don’t rent it out.

Will the house still be capital gains tax-free after she dies?  Thanks, Tracey

Hi Tracey,

As aged care is very technical, I have asked an aged-care specialist, Jennifer Langton, head of advice at Aged Care Personal Advice for a response:

With mum in aged care – as long as the property was her main residence and the home is not rented or used to generate income – the property will retain its main residence exemption for tax purposes indefinitely and not be subject to capital gains tax. 

If you do choose to generate income by renting the property, the six-year (main residence) exemption for CGT applies from the time it starts producing income. 

So if the home was rented for a full six years, it would then become subject to CGT for the period of ownership after the six-year exemption ceases. 

However, the six-year period can be broken up – for example, if it was empty for two years, then rented for four years, you would still have another two years of the CGT exemption available.

I should probably also mention that treatment of the home for assessing of aged-care fees and age pension entitlements also needs to be considered. 

The home will have a capped asset value for aged-care fees indefinitely but will become fully assessable for age pension entitlements after two years in care, when the (Centrelink) principle residence exemption ceases. 

If you do decide to rent the home, any rent received will be assessable for both aged-care fees and age pension.

I suggest seeking personalised advice in this area.

Question 3 

If you move your super into pension phase, can you still contribute? Or can you move a portion into pension phase and still contribute?

Current rules don’t allow you to contribute directly into a pension account.

If you (or an employer) will make future contributions, it may be best to keep a small amount in your super account, $5000 or so, to keep it open and start a pension with the remainder.

The other option if you were to start a pension account with your total balance would be to open a new super account to receive the contributions.

Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services.

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.