Ask the Expert: How to invest in this under-utilised reverse mortgage arrangement

Question 1. Is the Home Equity Access Scheme available for properties in a Manufactured Home Lifestyle Village? In this village the house is owned and can be sold but the land is leased by the village owner.

Centrelink’s Home Equity Access Scheme (previously called the Pension Loan Scheme) is a reverse mortgage arrangement older Australians can use for a voluntary non-taxable loan from Centrelink.

It’s been under-utilised in the past but for those that are age pension or older it’s a great option if you want to receive regular additional income.

The loan provided is generally very conservative and it does provide a ‘no negative equity guarantee’.

Additionally, you don’t have to put 100 per cent of your property down as security, so let’s say you want to ensure at least 50 per cent of the property value to pass onto your children or other beneficiaries, you can nominate only a 50 per cent security, and Centrelink will factor that in when deciding your maximum loan amount.

Clients can nominate a fortnightly loan payment amount of up to 150 per cent of the maximum rate of pension.

You can either choose to receive:

  • The maximum amount, being 150 per cent the maximum pension payment rate, or
  • A percentage that is lower than 150 per cent. For example, 120 per cent per fortnight or 80 per cent per fortnight, or
  • A fixed flat rate (loan type ‘fixed’) for example, $500 per fortnight.

Coming directly to your question, any real estate in Australia (principal home or investment property) in which you have an interest can be used as security for the loan.

Services Australia will register a statutory charge on the title deed of the property offered as security and all associated costs with registering or removing the charge is to be paid by you or added to the outstanding loan balance.

The property offered as security will be valued independently by a licensed valuer appointed by Services Australia (at no cost to you). Note that you need to have a minimum equity of at least $10,000.

I haven’t come across your exact situation so I would suggest you confirm directly with Centrelink but hopefully there is a good chance you will be.

Finally they also provide a handy calculator that can show you how much you can receive under the scheme and the corresponding loan, in both table and graph formats.

Question 2. I have several investment properties, am 55, working full-time for around $50,000 a year. I have no other investments apart from my employer superannuation. I want to sell a property and put the surplus funds into a super fund to diversify my investments and receive the tax benefits in superannuation. I have held the properties for a long time, so the capital gains will be significant.

How can I maximise my superannuation contribution deductions to minimise capital gains tax? Thanks

It’s a good idea to diversify your investments, it’s investment rule 101. And holding investments in a tax-effective vehicle like super is also a good idea.

Look to maximise your tax deductions to reduce the net capital gains tax you will pay. One way of doing this is by claiming a tax deduction on your super contributions.

This would then turn these contributions into ‘concessional’ contributions which have an annual cap of $27,500.

Your employer SG contributions also come under this cap.

If you are earning $50,000 then your employer contributions should approximately be $5250 ($50,000 x 10.5 per cent). This leaves you $21,750 available to claim a tax deduction on.

If you have a total super balance of below $500,000 then you may also be able to use the ‘carry forward rule’ and use ‘unused’ concessional contributions from previous years, this would be perfect for reducing capital gains.

The ‘carry forward’ amount could be substantial and would allow you to make personal tax-deductible contributions well in excess of $27,500.

You can check this figure via your ‘MyGov’ login (see example below). You should also seek personalised tax advice.

Question 3. We closed our pension accounts with an industry fund two years ago and now regret that action. Can we start another one? We are both 84? Our funds are in term deposits.

If you have no funds in super accumulation, then unfortunately no, you cannot start another super pension as your age now precludes you from contributing more funds to super.

To make a contribution to super you must be under age 75.

This is why it’s important to keep funds within the superannuation system as you cannot get funds back into super after that age.

I’ve seen many people cash out their super just because ‘they can’ only to regret it later.

Craig Sankey is a licensed financial adviser and head of Technical Services & 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. 

The New Daily is owned by Industry Super Holdings

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