Question 1: Do people on the Centrelink aged pension have to pay tax?
The age pension is taxable.
But if that is your only source of taxable income, then you end up paying no income tax, as age pensioners are also entitled to the Senior Australian Pension Tax Offset (SAPTO).
Combined with other offsets, this gives single age pensioners an effective tax-free threshold of almost $33,900.
When you consider that superannuation income payments are paid tax free from age 60 (unless coming from an untaxed source, which would be unusual), then this is very generous.
It’s only when older Australians have considerable other taxable income, say dividends, interest from shares, managed funds or other non-super investments, or rent from an investment property, that some tax becomes payable.
Question 2: We own our home and an investment property worth $500,000. There is a vacant block next door to our home for sale at $600,000. Could we buy it, improving our lifestyle as nobody could build there, and combine it into one title, making it part of our residence?
We would need to sell the $600,000 property. This would reduce our non-residence assets so we qualify for a pension. Would Centrelink have a problem with this?
This will be dependent on the exact circumstances. For example, it will depend on whether the council will allow you to combine the two properties into one title.
Generally, if land is held on two titles, it may be considered as if it is held on one title where:
- The house is located on both blocks of land, or
- The alienation of one of the blocks of land without the other will seriously undermine the function of the house as a dwelling, or
- Both blocks taken together are protected under a law of the Commonwealth, state or territory, because of their natural, holistic or Indigenous heritage.
I would seek clarification from the Financial Information Service before proceeding.
Question 3: I’m retiring when I reach 60 years of age. How much tax will I have to pay on a lump sum payment?
Generally no tax is payable when funds are withdrawn from super either via a lump sum or via a regular income stream once you attain age 60.
The only exemption to this is for people who are in ‘untaxed’ super schemes or in constitutionally protected funds.
Before taking a lump sum payment, you should consider whether it is appropriate to keep at least some of your funds in super to start a regular income stream, as these funds may have to last you the rest of your life.
Question 4: My husband’s elderly parents have four adult children as beneficiaries in their will. Everyone has agreed that only one adult really needs the proceeds. Do they need to change their will, as they think by telling the two executors (one being my husband and the other being the new beneficiary) is enough?
I’m sure they do need to update their wills to show this change. What would happen if they don’t update, and what would be the consequences if my husband proceeds to pay his share to his sibling?
Currently ‘everyone agrees’, but there is a danger that this will not always be the case.
It’s uncanny how often people have different recollections of non-written agreements, and people also change their minds when circumstances change. These issues are even more prevalent when large sums of money are involved.
If an executor fails to carry out the instructions in the will, then a beneficiary or other interested person may petition the probate court to have the executor removed. Additionally, the executor may be held personally liable for not carrying out their duties or doing so improperly.
If will be far easier and cleaner, and minimise the chance of a dispute, if the will was updated now to reflect what has been agreed upon.
Question 5: I am married, with no dependant kids. My partner and I are retired. I have an investment property that I am selling, which I have owned since about 1984. It is fully paid off and in my name only.
I am not against paying CGT, but if the profit from the sale can be better utilised, I would be happy for that to happen. Can I contribute to my (two) children’s superannuation? I intend to do this anyway, but a tax-effective way would be better. In the same way, can I contribute some to my partner’s superannuation?
Capital Gains Tax (CGT) only commenced in Australia on September 20, 1985, and investments like shares and property that were purchased prior to this date have been grandfathered, i.e. they are not liable for CGT at time of disposal. Any capital gain is realised tax-free.
However, if you have made capital improvements or additions on the property, such as a major renovation, then the improvements themselves may be subjected to CGT.
The ATO has some guidance around how this works and how to calculate the CGT on the improvements only.
You can make non-concessional (after-tax) super contributions to your husband and children’s super if you wish. Normal contribution rules would apply.
Craig Sankey is a licensed financial adviser and head of Technical Services & 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.
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