Parents own too much land for pension

HI Redspida,

Without meaning to sound harsh I think your parents have got this back to front entriely.

They have a million dollar asset that they are wanting to ‘deal with’ in order to get the pension which currently runs at a maximum of $420 each/couple.

It seems to me they would be better off looking at ways to leverage off their asset so that they can continue to live comfortably and also provide something for the kids.

Sure I can appreciate the difference in the thinking process but at the end of the day they need to consider their needs more prominently.

Derek
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http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113

My parents did a stupid thing. Virtually gave away (low market at the time) a whole bunch of terrific assets bringing in big yields in pursuit of a crappy pension.
Although, your parents with their land in WA maybe best to sell now before the market goes backwards, if they intend to sell at all.

Redspida

It is unfortunate that we seem this sort of thing happening every day of the week. Hard working Tax payers who will not qualify for a pension due to a variety of circumstances.

The Tax treatment and social security treatment of the disposal of assets is considered differently as is to complex to explian on the forum here.

Social Security benefits are assessed on both a Assets Test and Income Test although as a Homeowner Couple the Family home is considered an exempt Asset (there are exceptions especially on larger land holdings) and therefore would not effect them currently.

The question is how do they subdivide the property dispose of the assets and still qualify.

From what you have said if they sell off the property and invest the money then the Deeming rules will apply and they will miss out on both counts of income and assets. If they subdivide and then hand over a parcel of land to their children they will be caught in the Deprivation (Gifting) rules.

One consideration is to look a variety of non asset tested income streams.

Given the number of years to go to retirement i would strongly suggest that your parents sit down with a Financial Planner and work through their options.

Let us now how they go.

Richard Taylor
Residential & Commercial Finance Broker
**Lodoc Commercial loans from 7.19%**
Licensed Financial Planner
http://www.yourstatefinance.com
[email protected]
Ph: 07-3720 1888

Stamp is always payable when the name on the title changes. Capital gains tax isn’t payable though if it’s a PPOR.

I agree, they can do much better than the pension. How about a no doc mortgage on the property, increasing the amount each year. On a fully owned $1m property, growing in value at a very conservative 5% they can borrow $50k in the first year to live off, tax free. The property is then worth 1m + 5% = 1,050,000 so they still have their 1m equity. In the second year, they borrow say $55,000; 50 to live off and 5 to pay the interest on the loan. Now the property is worth about 1,105,000 so they still have $1m equity. And so on.

Given that it’s likely to increase at much more than 5% they should still end up with more than they started with, and have a much much better lifestyle than if they were on the pension. When they pass on, you can either sell or take on the loan. Good luck. [rambo2]

I’m not an accountant (thank the Lord for that !!), but the legislation specifically states 2 hectares are CGT exempt for your PPOR.

1 hectare = 10,000 sqm
1 hectare = 2.471 acres

Therefore the ATO will exempt 4.942 acres. Your parents other 5.058 acres will attract CGT if you go down the sell option, unless it was purchased prior to 1985, in which case it will be CGT free. Of course, if it enjoys that privileged position – why sell it and then bring it into the CGT nasty zone ?? Makes no sense.

On a general comment on the initial post, I believe your parents made a fuzzy target in their primary aim when they purchased the prop and had no chance of hitting it. It appears from the info you have provided, their next target of re-arranging their affairs to qualify for the pension is also ill founded.

My parents were in a similar position to yours are now 5 years ago, with the same ill founded goal of getting the pension regardless…it was amazing what they were prepared to sacrifice to get it.. We sat down and got them on the right track. It took a while to change a mindset that was entrenched in the 50’s. They now realise their thinking was completely flipped up the wrong way.

The pension and all of the paperwork BS you need to constantly submit to the DSS is a nightmare to be avoided at all costs if at all possible. It appears from your parents equity in their PPOR this is entirely possible. Try exploring other way more productive opportunities than submitting your finances to the DSS….that health care card the pensioners laud so highly is only worth about 6K….instead, why not try shooting for the stars and settle for something far greater than the pension.

They dont make it easy do they..[blink]

I would also be thinking a reverse Mortgage or looking to leverage the Property, maybe establish a Trust and look at some JV’s with family who would stand to inheret anyway..

It seems the goal is to try and access the value without losing the asset…

However, what if they sold the asset (move into a retirement village, or acquire another slightly cheaper property under the correct structure-leaving additional funds for thier personal investment/use for the next few years) then looked at thier options with the end goal in mind..if the land was to go to the kids would it have to be sold and split anyway..?

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Look into the pension effects of them becoming a primary producer .
With 4 acres they could put some cows on the land and may become deemed primary producers which might help their problem.
Check this possible angle out out with an accountant.