Capital gains tax on sale of former rental home, Digi Mart USA News (Australia): A 72-year-old single reader plans to sell a former home bought in 2007 for $860,000 following a divorce. The property was her principal residence until two years ago, when she moved out and rented it.
It is due to go to auction in February, and the agent estimates it is now worth $1.5 million. She intends to move permanently into her beach house and give some of the sale proceeds to her children.
She asked whether she would have to pay capital gains tax because the property has been rented for the past two years. She also asked whether contributing about $200,000 of the proceeds to superannuation would attract the 15 per cent contributions tax or qualify as a downsizer contribution.
Her current superannuation balance is $1.4 million.
The publisher’s adviser says the six-year capital gains tax rule allows a former home to continue to be treated as a main residence for up to six years after the owner moves out, even if it is rented to tenants. Provided no other property is treated as the main residence during that period, the property should be sellable without capital gains tax.
The adviser says that because she is under 75 and her superannuation balance is below $2.1 million, she could use the downsizer provisions. Alternatively, she could contribute the $200,000 directly to superannuation as a non-concessional contribution, using bring-forward provisions if eligible.
No 15 per cent contributions tax applies to non-concessional contributions, and this would preserve the downsizer option for the future. Other eligibility conditions apply to downsizer contributions.
A separate reader asked whether sharing a $60,000 club “Badge Night” prize equally among six pensioners, under a prior agreement, would be treated as gifting by Centrelink. The adviser notes that pensioners may give away $10,000 in a financial year, up to $30,000 over five years, without affecting their pension.
If the winnings were distributed under a genuine agreement made before the draw, the payments may not be gifts but distributions to which members were entitled. The adviser recommends obtaining Centrelink’s view before the next draw.
A couple aged 62 with a family home worth about $3 million and a $255,000 mortgage at a variable rate of 6.8 per cent asked whether to draw down super to repay the loan. The adviser suggests maximising concessional super contributions while both are working, noting that salary sacrifice could add about $41,000 a year taxed at 15 per cent, subject to individual caps and contributions already made this financial year.
The adviser cautions against large super withdrawals while still working, notes that unrestricted access generally requires retirement after age 60, and suggests the partner investigate a transition-to-retirement pension. The adviser says the couple should consider downsizing later once their retirement plans are clearer.
A reader whose daughter and son-in-law took out a $265,000 Suncorp mortgage in 2009 for a three-bedroom house in Brisbane asked how to repay the loan faster. The adviser suggests speaking with a mortgage broker about refinancing, since the couple appear to have more than 20 per cent equity and may avoid lenders mortgage insurance.
A split loan, with part fixed and part variable, could give rate certainty while allowing extra repayments on the variable portion.
