Ask the Expert: Capital gains tax, inheritance and Centrelink asset assessments

Today financial adviser Craig Sankey looks at the value of assets and their impact on pensions and other benefits as well as inheritance.

Jun 26, 2024, updated Jun 26, 2024
Keep capital gains tax in check by considering these factors. Photo: Supplied

Keep capital gains tax in check by considering these factors. Photo: Supplied

Question 1

Asset rich but income poor. My wife and I own our home and inherited my father’s holiday house 23 years ago. It was built in 1973 and we rent it out for about $25k per year. We both have part-time jobs to support our work as artists. My wife is 50 with $22k in super and an annual income of $30K. I am 65 with $180k in super with an annual income of $25k. Could we sell the rental property, which is valued at $750k, and put that money into our super funds? How would this affect my eligibility for a pension?

Yes, you could sell the holiday/rental home.

You would need to factor in capital gains tax (CGT) on the holiday home. As it was a pre-September 1985 asset, the cost base will be based on its value on the day you inherited it.

You could look to make concessional and non-concessional contributions into both of your super funds.

To reduce the capital gains tax, you could both look to make tax-deductible contributions to super.

These count under the concessional cap.

Currently, the annual cap is $27,500 (moving to $30,000 from July 1, 2024), however, as you have super balances below $500,000 you can use the “carry forward” provisions which allow you to use prior years’ unused concessional contributions.

MyGov or the ATO will be able to provide you with your individual concessional caps.

Also note that from age 67 you also need to meet a work test to make a tax-deductible contribution to super.

You could then look to make after-tax, non-concessional contributions to super.

From July 1 the annual cap is $120,000, but with non-concessional contributions you can use the “bring forward” provisions and make three years of contributions in one go, i.e. up to $360,000 each.

As you are already 65 you can then access your super at any time.

A big advantage in your wife contributing to super is that her super won’t get counted in the age pension income or asset test once you hit age pension age (67).

As your wife is 15 years younger this could mean additional age pension payments over that time. However, you also need to consider she won’t have access to her super until age 65, or unless she changes jobs or retires from age 60.

Given your age and the opportunities that arise from selling your holiday home, now might be a good time to seek personalised advice.

Question 2

When I die my son will inherit my house. It is only worth about 200K. If he is on the dole, will that affect his income?

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If your son lives in this as his main residence after you die, assuming he doesn’t already have another home, then it will not be assessed by Centrelink.

If he does not live in it or if he sells it and places the funds in his bank account, then the value will be assessed.

Under the Jobseeker asset test (or ‘dole’ as you describe it) you can have the following level of assets, depending on your status (as at June 30, 2024):

  • $301,750 if you are single home owner
  • $543,750 if you are single non-home owner
  • $451,500 if you are a couple home owner
  • $693,500 if you are a couple non-home owner.

If your son exceeds the above level of assets, then he will lose access to Jobseeker all together.

Note that this is vastly different to how pensioners (Age and Disability etc) are treated under the asset test.

If you are on a Centrelink pension and exceed the above limits, then your payment is only reduced by $3 per fortnight for every $1000 you are over the limit.

Question 3

Over one year ago my second house was valued at $350,000… at the beginning of this year Centrelink has arbitrarily increased its value by $30,000… decreasing my pension by approximately $100. Can Centrelink do this without consultation?

Centrelink assesses assets at their net market value.

It defines this as: “The net market value is the amount a person would expect to receive if they sold the asset on the open market, less any valid debts or encumbrances.”

Centrelink does regularly update the estimate of assets.

If you do have any evidence that their valuation is incorrect, such as rates notice, or some quotes from estate agents, Centrelink will take this information into consideration and reassess the property’s value.

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.

This column also appears in our sister publication The New Daily, which is owned by Industry Super Holdings

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