What pensioners need to understand about capital gains tax

Contrary to popular belief, capital gains tax is not a separate tax.

Contrary to popular belief, capital gains tax is not a separate tax. Photo: Getty

Question 1: What percentage capital gains tax do you pay on investment properties if you are an old-age pensioner?

There are a few misconceptions that I would like to clear up.

First, there is a common misunderstanding that capital gains tax is a separate tax and charged at a flat percentage.

A more useful way of thinking about it is that you pay tax on capital gains, at your marginal income tax rate.

Note that sometimes if you have a large capital gain it will move you into a higher marginal tax rate, or move you from paying no tax to paying some tax.

Therefore, any capital gains you make, less any discounts, are simply added to your income tax return, and all income is added together to work out how much income tax you are liable for.

Secondly, the age pension is taxable. It’s just that if the age pension is your only source of taxable income it’s not enough for you to pay income tax.

Because older Australians are also eligible for more offsets, they can receive more income before they have to pay any income tax.

For 2021-22, if you are single and of age pension age or over, you only pay tax once you receive a taxable income of $33,898 or more.

Finally, in your question you refer to ‘old’ age pensioner.

As far as I can tell, in Australia, we have only ever called it the age pension. However, I do hear people regularly call it the ‘old-age pension’.

Perhaps it’s called this as that is how some other countries refer to it (such as South Africa), or perhaps it’s a hangover from the initial Federal Government Act, which was called the Invalid and Old-Aged Pensions Act 1908.

But from now on, you can drop the ‘old’ and call yourself an age pensioner.

Question 2: I am 72, female and until recently, have lived together with my younger sister for the majority of our adult lives. My sister was on a disability pension and I retired at age 66. We left Darwin after 42 years and returned to Queensland. We sold our home in Darwin and the proceeds – approximately $570,000 – were put in my bank account.

Centrelink deemed this money from the get go and I was not paid the full pension until we purchased our new home in Qld. My sister continued to receive her disability pension in full and she was not of retirement age. I thought you had 12 months to purchase another property before the proceeds of the sale of the family home could be deemed.

My sister passed away recently and though Centrelink are aware, I have not advised them that I am now the sole owner-occupier, i.e. I have not updated my asset information.

In the future, I will need to downsize, but if Centrelink reduces my pension for the time it takes me to purchase a smaller property, I don’t think I could live without eating into the monies from the sale. If I was to make a profit, could I put some money into a super fund to get an additional small income stream, without it affecting my aged pension? Thanks in advance.

If you sell your principal place of residence and intend to use the proceeds within 12 months to buy another home, the portion of the proceeds that will be used to buy another home are exempt from the assets test for up to 12 months from the date of sale. You would then be assessed as a home owner during this period.

But you do need to inform Centrelink that this is your intention, otherwise they will simply start asset-testing the proceeds from day 1.

If the sale proceeds are invested in a financial investment, e.g. a bank account, they are still subject to deeming under the income test from day 1. As you are over age pension age, the funds would still be deemed under the income test if you contributed the funds to super.

It’s important that you keep your information up to date with Centrelink so you do not incur a debt.

Services Australia offers a free Financial Information Service that provides you with information that can help you make the most of your situation and maximise your entitlements. I suggest contacting them in the first instance.

Question 3: If you make a loss on shares, i.e. the company is removed from the ASX or you sell shares at a loss, do you claim this as a tax deduction for that year, or do you get a credit for some time in the future when you sell shares at a profit?

You cannot claim a tax deduction, but you can offset the loss against a current or future capital gain, whether that capital gain is through shares or another type of asset.

As an example, if you make a loss when selling shares this financial year, you can carry that loss forward to when you sell an asset in a future financial year, say an investment property, that has made a capital gain.

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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