Allowing first home buyers to access part of their superannuation for a house deposit could be costly

Written by realestateview.com.au in First Home Buyer

Tim Wilson needs to remember that the genesis of the global financial crisis was President Clinton’s belief that every American was entitled to home ownership, irrespective of income or assets. This led to billions of dollars of bad debts, repossessions and plunging real estate prices. Australia can’t afford for that to happen here.

Noel answers your money questions

Question

I have sold my home for $1,200,000. I intend to buy or build another within the 12 months stated by Centrelink and expect to spend around $850,000 on the new property. I have just been told by Centrelink that I’ll have to pay deeming rates on the full sale price and possibly lose my whole pension. I am single. Is this correct? What can I do to keep my concession card?

Answer

Services Australia General Manager Hank Jongen says that when an Age Pensioner sells their home, the portion of the proceeds which the customer intends to use to purchase, build, repair or renovate a new principal home is an exempt asset for up to 12 months.

This period may be extended to 24 months when a customer makes reasonable attempts, within a reasonable amount of time after selling their home, to purchase, build, repair or renovate their new home, and has experienced delays beyond their control.

When the proceeds are held as financial assets (for example in bank accounts in which the proceeds may produce income) they will be subject to the deeming provisions – this includes the portion of the proceeds that the customer intends to use for their new principal home.

All Deemed income from financial investments is assessed along with any other income in the income test to determine the rate of Age Pension. If you use the Deeming Calculator on my website you will see that deemed assets of $1.2 million produce, for a single person, $998 a fortnight of deemed income. That should allow a pension for a single homeowner of around $534 a fortnight

While the portion of the proceeds to be used for the new principal home is an exempt asset, the customer continues to be treated as though they are a homeowner and assessed under the homeowner asset test.

A Pensioner Concession Card (PCC) is automatically issued to eligible customers who receive a social security pension or an income support payment. When a customer’s payment is cancelled, they generally lose entitlement to their PCC at the same time.

Question

There has been much written in your columns about the $1.6 million transfer cap which is the amount that can be transferred to the tax-free pension area in superannuation. I understand this will rise to $1.7 million on July 1. Will this flow through to the current $1.6 million cap on non-concessional contributions to superannuation?

Answer

There is good news here – the limit on non-concessional contributions will also rise to $1.7 million on July 1.

Question

My parents and I own an investment property in equal shares, as tenants in common. They would like to gift their share of the property to me, and I will take over the mortgage. Would this be a capital gains tax event for which we all have to pay tax?

Answer

Any disposal of property either by sale or gift will be a capital gains tax event.

The CGT may not be too onerous because your parents will be disposing of only 50 per cent of the property, and provided the property has been owned for more than a year your parents will get the 50 per cent discount as well. Just make sure you take advice because depending on their circumstances your parents may be able to mitigate some of the CGT by making a tax-deductible contribution to superannuation.

Question

I have been trying to find out whether my husband and I are eligible for the Commonwealth Seniors Health Card and have spoken to at least three different people from Centrelink and am still unsure whether I have got all the facts I need, in particular how superannuation funds in Accumulation are treated.

I have been told by the last person I spoke to at Centrelink that funds we have in Accumulation in our SMSF are not subject to deeming but if these were in an Industry Fund they would be subject to deeming. I queried this because it didn’t make any sense but was told that the legislation treated them differently. Surely this cannot be right. Can you confirm whether this advice is correct?

Answer

The CSHC is not asset tested – the income test will look at both your adjusted taxable income and a deemed amount on account based income streams. Superannuation in accumulation should not be deemed as you are not drawing an income stream from it. The type of fund in which you hold your money should make no difference to eligibility.