I have an enquiry as to whether NSW government stamp duty would be payable in the following scenario. My elderly widowed mother owns her Torrens title home outright. In the event of her passing, my brother and I would be the sole beneficiaries with equal shares. I wish to keep the property and pay out my brother's share to him. He does not want to come to an agreed value with me as he feels it may not be the market value at the time, which I understand. He wishes to sell the property and then receive his half share of the sale price. My enquiry is that should I be able to convince him to accept a registered valuer's valuation of the property and pay him out, or if not, the property is auctioned and I am the successful bidder, and I pay him his half of the purchase price and keep the property, would I need to pay any NSW government stamp duty, as the property will have been bequeathed to the two of us in the will? Also, would any special conditions need to be mentioned in the will to allow this to happen? M.S.
An interesting question. NSW only allows duty-free transfers between married and de facto couples so that, under current rules, you would not be exempt from paying stamp duty on your brother's half of the property. That would be so even if you win a public auction for the property, since you already own half.
If your brother is open to negotiation, an alternative approach would be for your mother's will to leave the house to you and you would sign a contract before a solicitor to pay an amount equal to half the average of three separate valuations, two of them to be chosen by your brother. He might even ask you, when the will is prepared, to place an amount roughly equal to the expected payment in trust with the solicitor, plus a bonus of, say 10 per cent of the duty that he would be saving you.
My wife and I are now self-funded retirees who, like many others, lost what little pension we used to get on January 1 this year. We need about $60,000 a year to live reasonably comfortably. But we have an annual shortfall of about $9000 a year which we hoped to make up using the Centrelink Pension Loan Scheme. We own our house and an investment property on which we still owe $160,000 (currently interest only - we can't afford P&I) which we would use as collateral for the loan. We would borrow about $90,000 over 10 years "drip fed" fortnightly with interest currently at 5.25 per cent accruing on the amount outstanding. At the end of the 10 years I estimate we would then owe about $121,000. If we then sold the investment property, what are the CGT implications of: 1. The original outstanding loan of $160,000 - is that taken into account to reduce the capital proceeds and hence reduce the CGT liability? 2. The additional $121,000 now also reducing our proceeds from the sale. Should we update Centrelink as to the reduction in the value of our assets as a result of the pension loan? C.M.
The capital gain is not affected by the size of your loans. For example, suppose you bought the investment property for $200,000 after borrowing $160,000. Let's say you use the Pension Loan Scheme and you sell for $500,000 after 10 years, when the loan has increased (using your estimates) to $281,000, and you then repay the loans from the sale proceeds.
Your capital gain is still ($500,000-$200,000=) $300,000 and you would add 50 per cent or $150,000 to your taxable income that year. If the property was jointly owned, you would each add $75,000 to your assessable income, paying the tax out of the sale proceeds.
Much depends on whether you would be eligible for the Pensions Loans Scheme (PLS) which is available to Centrelink clients who receive a reduced age pension or, in your case, a nil age pension due to either the income or the assets test, but not both. In other words, if it is only the assets test precluding you from a part age pension, you are eligible.
While there is a formula for the maximum loan size, you can choose to decrease this, if necessary, so that you can ensure you will always have, say, $300,000 in equity (i.e. enough to pay off the loans). This then sets the maximum you can borrow, which can be re-calculated every 12 months.
An interesting point to note is that while a couple may be eligible (or nearly eligible in your case) for a part age pension, this can change if one partner passes away. In such circumstances, the survivor is then subject to the lower, single person's income and assets thresholds and can lose the pension, or become ineligible under both tests.
The latter case would see the survivor no longer eligible for the PLS and he or she would be required to repay the loan after the end of the bereavement period (up to 14 weeks for pensioners), usually with money from their spouse's estate. Deceased estates are rarely settled within 14 weeks.
Some mortgage brokers specialise in reverse mortgages and you may be able to find one offering a lower rate than 5.25 per cent. However, those loan providers listed on finder.com.au charge around 6.2 per cent or higher.
Would it not be simpler to sell your investment property, especially if we are now at, or near, the top of the market?
I am currently investing in equities for my two grandchildren, with dividends reinvested in new stocks or added to existing ones. Hopefully, by the time they are 18 in a few years' time, there will be sufficient for them to continue to build on them, or use their shares for education, etc. In a recent reply in the column, you indicated that the shares can be transferred to them when they are 18. Can you please tell me the process on how this is done? Will the cost base be when I bought the shares, or when they are transferred to them? R.G.
The registrar of each share you bought will supply you with a transfer document to be filled in, with both signatures, and returned with your certified IDs. The major share registrars are Computershare (which charges $69 per transferee) and Link ($65 transfer fee) but there are other smaller ones.
I'm not sure I would agree with your plan to transfer the shares as the 18 year olds would be liable for capital gains tax, although I presume you might offer to pay that for them. Also, unless you have carefully kept records, you would probably have trouble calculating the capital gain as each dividend reinvestment would be a separate calculation, the cost base of each parcel being its purchase price, possibly going back 18 years.
The price at which you transfer the shares will be the closing price on the ASX that day and the capital gain will be the difference between that and the cost base of each parcel. Those shares that have been owned for more than 12 months allow you to halve their capital gain before adding it to your assessable income that year for tax to be assessed. Those shares bought within 12 months of transfer see their entire capital gain treated as income i.e. wholly taxed. If any shares show a loss, this can offset any gains being crystallised.
The grandchildren will then own shares with a cost base equal to the transfer price and future CGT will be calculated using the price at which they in turn sell.
Unless you earnestly wish to transfer the shares in order to get the grandchildren interested in shares, you can bequeath them in your will, in which case they will only pay CGT when they themselves get to sell the shares.
But then, if you're planning on that letter from the Queen, and there's many years to go, and the kids could use the money, perhaps an earlier transfer is the way to go.
If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Help lines: Financial Ombudsman, 1800 367 287; pensions, 13 23 00.