Ask Noel: pensions, health cards and more

Can I sell my unit to go travelling?

If I sell the unit I live in to go travelling, do I pay capital gains tax (CGT)? If so do I pay tax on the sale price or the net proceeds after the mortgage is paid? I am almost 60 years of age and on a disability pension. How will this affect my pension? The sale price would be about $200,000, less a mortgage of $50,000.

As the property is your residence, it is exempt from CGT. If CGT were payable it would be levied on the net sale proceeds – the sale price less fees. The amount of the mortgage is of no consequence.

Once you sell the property you will become a non-homeowner. The effect of the sale on your pension will depend on your total assets. If all you have is the sale proceeds, and a small amount of personal possessions, you should still retain the full pension.

If you sell your residence to go travelling, the proceeds will be exempt from Capital Gains Tax.

MY elderly sister owns a property worth $650,000 and receives the age pension. She has assets of $150,000 in a super fund and receives a fortnightly payment from this fund. Her brother receives the age pension and will soon move in with his sister. He has no other assets of substance. If his sister needs to move to an old age home, will she be forced to sell her house to pay an accommodation deposit to the old age facility; or will the fact the brother resides there mean the house will not need to be sold as appears to occur when a couple is involved?

The exemption that can apply to the former home is based on whether or not a ‘‘protected person’’ is living there. A protected person includes a spouse or dependent child but can also include a carer who has been living in the home for at least two years or a close relative who has been living in the home for at least five years, so depending on how long the brother has been living there, his role (and assuming he remains eligible for a pension) he will qualify as a protected person.

I retired in September and applied for a Commonwealth Seniors Health card. Centrelink informed me that my income from my account-based pension (started before January 2015) would be deemed and added to the income earned for the period July to September. This prevented me being granted a card. I was under the impression that if a pension was started before that time it was grandfathered. This has prevented me from moving to a fund with a better long-term return. Could you advise whether there is any disadvantage in terms of Centrelink of transferring to a new fund?

From January 1, 2015, the Commonwealth Seniors Health Card (CSHC) has been subject to an income test where any deemed amount from account-based pensions is added to a person’s adjusted taxable income, to determine their eligibility for the CSHC.

The deeming rules apply to any new account-based pensions purchased on or after January 1, 2015, and account-based pensions purchased prior to January 1, 2015, but where the person commenced receiving an income support payment or became a CSHC holder on or after January 1, 2015.

The grandfathering provisions only apply to account-based pension products that were purchased before January 1, 2015 where the person was an income support recipient or a CSHC holder on December 31, 2014. The grandfathering provision is maintained while the person continues to be in receipt of the income support payment or retains an ongoing entitlement to the CSHC.

In your case your account-based pension is not grandfathered, as you applied for a Commonwealth Seniors Health Card in 2017. As a result, the product would be deemed under the current rules introduced on January 1, 2015. The good news is there is now no downside in moving to a new account-based pension, as it will still be assessed for the CSHC under the deeming rules.

A recent article by you stated that says trust income can be diverted to (say) grandchildren and they can then have $18,200 tax free per year. Is that actually the case? I was of the understanding in earned income by a child was fully taxable after about $416? Or are testamentary trust rules different to discretionary trusts rules? I have a discretionary trust and would love to be able to distribute $18,200 to each of my three sons, aged 14, 13 and 11, tax-free.

As you infer, that article was about testamentary trusts which are formed when a person dies if they have made provision for a testamentary trust or trusts in their will. I’m sure most of us would love to be able to distribute $18,200 to our children tax-free but sadly there is no such thing as a free lunch.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature. Readers should seek their own professional advice before making decisions. Twitter: @noelwhittaker

This story Ask Noel: pensions, health cards and more first appeared on Newcastle Herald.