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I am aged 85, single and retired, and need to provide for my only child, who is single and on a disability support pension. My assets include my home, valued at $1.7 million, shares worth $60,000 and superannuation of $10,000. I get the full single age pension of $987.60 a fortnight ($25,678 a year). This is insufficient for me, and I have been selling my shares. My options seem to be: 1. Downsize. This would cost about 2 per cent in sales commission, plus marketing costs. Then, to buy another property, I would pay stamp duty of 4.3 per cent on the purchase price, and most probably a strata levy, while I may also lose some or all of my age pension. 2. Access equity in my home under Centrelink’s Home Equity Access (HEA) scheme, or similar. What are your thoughts? G.W.
Regarding your two options, I would favour accessing your property’s equity under Centrelink’s HEA scheme.
However, if providing for your child is an immediate priority, you could consider a land-lease community, whereby you sell your property and buy a smaller home in an estate, without paying stamp duty.
Prices can be less than $400,000, but always check their fees. Some have no exit or deferred-management fees, while others do not.
That could leave you with enough money left over to place up to $500,000 in a Special Disability Trust for your child, which is the maximum gifting concession allowed without affecting your age pension.
Your child could then claim an assets-test assessment exemption of up to $724,750 (indexed each July).
You recently covered the question of capital gains tax after death when assets pass on to non-residents. Two of my three children previously lived overseas and, had I died at the time, CGT would have been payable by the estate on their inheritance, and my Australian-resident third child would have been disadvantaged. So, my solicitor added the following clause to my will: “Should the liability for such tax arise as a result of the transfer of any asset from my estate to a tax-exempt and/or non-resident beneficiary, such beneficiary shall pay to my trustee the assessed amount of such tax prior to any such asset transfer or agree to an equivalent reduction in his her or their entitlement to my estate of the assessed amount of such tax.” J.H.
Thank you for that, it may assist others in similar situations.
While on the topic of overseas inheritances, a question was recently asked: “What is the cost base when an Australian resident receives an inheritance from overseas?”
The Australian Taxation Office does not seem to cover it on its website, focussing more on death benefits going to, rather than coming from, overseas residents.
However, on further research, deep in the bowels of the Income Tax Assessment Act [ITAA 1997 S128.15 (4)(3A)] is a rule that states when you inherit an asset, such as property or shares, from an overseas resident, you do not inherit their cost base, as you would if the deceased was an Australian resident (for a post-1985 asset).
Instead, your cost base is the value of the property or shares as at the date of death (as in the case of a local pre-1985 asset). My thanks to Pitcher Partners of Melbourne.
If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. All letters answered. Help lines: Australian Financial Complaints Authority, 1800 931 678; Centrelink pensions 13 23 00.
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