How retirees can balance property and superannuation

Retirees must negotiate complex rules when selling property and adding the proceeds to super.

Retirees must negotiate complex rules when selling property and adding the proceeds to super. Photo: Getty

Question 1: We are looking to spend the bulk of my superannuation on buying a property and living on the age pension. We might leave approximately $100,000 in the bank as a security net and modest interest earner.

The problem is, we need some land for our horses etc and are looking at properties with a house around 100 acres. How can we be assured that the land in excess of the house with the allowable five acres does not exceed the allowable assets test for the pension?

Your principal place of residence (home) is exempt from the income and asset test.

The maximum adjacent land that can be considered part of your principal home is two hectares (or five acres).

The conditions are that the adjacent land is held on the same title document as the home and used primarily for private or domestic purposes.

Any land exceeding the two-hectare threshold will not form part of the principal home and will be an assessable asset by Centrelink (there may be some exceptions for primary producers).

Additionally, any adjoining land on a separate title will generally also be an assessable asset.

Where land exceeds two hectares, the entire property and the exempt two hectares is valued separately. The difference between the two valuations is then asset tested.

Centrelink will generally accept your valuation of an asset if it appears reasonable or if it is unlikely that payment would be affected even if the actual value was significantly higher.

However, Centrelink has the right to seek an independent valuation if it is likely to affect your age pension entitlements.

You are not required to obtain professional valuations for any asset. But if you do provide a written valuation by a professionally qualified valuer, this can be used to determine market value.

Therefore, before purchasing a property, it may be worth having the home and surrounding two hectares valued separately to the total purchase price so you know where you stand with Centrelink. 

Question 2: My husband (70) and I (65) want to sell an investment property we have. We are both fully retired and each have income streams that fund all our expenses. We would like to put some of the money from the sale of the property into super accumulation accounts for use as future income streams. Is this possible and what are the restrictions that may apply? Thank you.

Anyone under the age of 67 can make after tax (non-concessional) contributions to super up to a maximum of $330,000, depending on your total super balance, as detailed on these pages previously.

If the investment property has made a capital gain it might also be worth making a personal tax-deductible (concessional) contribution to super, after receiving tax advice.

Currently, if you are between 67 and 74 you cannot make the above contributions to super without meeting a work test (or work test exemption).

To meet the work test, you must have worked at least 40 hours within 30 consecutive days in the financial year before the super fund can accept the contribution.

That said, the government has recently introduced legislation that proposes allowing individuals aged 67 to 74 to make or receive non-concessional or salary sacrifice superannuation contributions without meeting the work test (subject to existing contribution caps).

But individuals aged 67 to 74 years wanting to make personal-deductible contributions would still have to meet the existing work test.

If this legislation is passed, the expected start date is July 1, 2022, and your husband may be able to make a contribution at that time.

Note that if the investment property has never been your principal place of residence, then you cannot use the downsizer superannuation contribution rules.

Question 3: I am a 60-year-old single female, working full time at a university for the past 10 years. I own my own house but have an investment property (in Adelaide) that I have held for 10 years.

The Adelaide market has not provided a good return on investment. I would like to sell the house in the next two years and will make a loss (approximately $70,000).

Is there anything I can do to minimise this loss and will the loss carry over in future years until I have zero loss? What would be the best way to use this bad situation and turn it into a bit better situation? I do not plan to retire until I’m 67 to 70. Thanks.

When making a decision on whether to hold an investment, it’s the future prospects that should be considered, not the past performance.

It’s easy to focus on what you originally paid for an investment, or to believe that poor-performing assets will always be poor performing, but this is not necessarily the case.

With property prices rising recently, hopefully your investment has performed better.

If you do decide to sell, and make a capital loss, then the loss can only be offset against a capital gain, such as if you sold another property or shares and made gains on them.

You cannot use a capital loss to offset your employment income – it can only be used to offset capital gains.

If you don’t have a capital gain to offset the loss against, you can continue to carry it forward indefinitely until as such time that you do.

I covered this in more detail in a recent article.

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

Stay informed, daily
A FREE subscription to The New Daily arrives every morning and evening.
The New Daily is a trusted source of national news and information and is provided free for all Australians. Read our editorial charter.
Copyright © 2024 The New Daily.
All rights reserved.