Ask Ban Tacs Question
I purchased a property nearly 14 years ago in the name of my Trust and company name, to live in initially and with the potential to knock it down and construct units on it.(its actually two blocks total area of 2739 square meters.
After living in it for 12 years, I now rent it out but wish to sell it to a Developer.
Can I sell it and transfer ALL or nearly all of the money from it into my SMSF? (Expected Sale price – about $550,000)
I am 66, retired and living off rental income only!
Please advise what are my best options – where to go now?
Answer
What a shame, because you bought it in a trust you will be up for capital gains tax (no main residence exemption)! I am assuming the trust is not a bare trust, a bare trust is when you are the only possible beneficiary. The CGT is probably going to be a huge amount, after 14 years. Make sure you take as much advantage as you can of section 110-25(4) ITAA 1997 which allows you to increase the cost base of the property by anything associated with owning it that has not been claimed as a tax deduction. This would relate to expenses when you were living there, such as interest, rates, insurance, repairs and maintenance which can include cleaning materials, lawn mower fuel, light globes etc.
I gather when you refer to a trust and company you are saying that the property is owned by a trust that has a company as trustee, this at least means you will qualify for the 50% CGT discount. If the property is owned in a company then you will not qualify for the 50% CGT discount.
As you do not have employer support it would be nice if you could contribute to super to bring your taxable income down a little. But unfortunately, you are not going to satisfy the work test which is necessary to contribute to superannuation if you are over 65 years of age. The work test requires you to do at least 40 hours work in a 30 day period in the year you make the superannuation contribution. Your sole income of passive rentals will not help you qualify.
If you can find someone who will employ you for the 40 hours you then have to make sure that they are not required to make superannuation contributions for you or that your wages are less than 10 percent of your income, so that you qualify to be able to make contributions for yourself. This will allow you to put $35,000 into superannuation and claim a tax deduction for it and you will be entitled to put another $150,000 in which will not qualify for a tax deduction but will not be taxed going into the fund. In the next year if you can again satisfy the work test you can put another $150,000 in as a non deducted contribution. Depending on your tax bracket you may also want to put in another $35,000 in the second year and claim a tax deduction for it but as the $35,000 (unlike the $150,000) will be taxed at 15% going into the fund you have to consider whether you have enough taxable income to make it a tax effective decision. For example with the seniors’ tax offset a single person can have a taxable income of $32,279 a year and pay no tax anyway.
There are lots of traps in qualifying to contribute to superannuation once you are over 65 so if you can find a way of satisfying the work test please first make sure you discuss your situation in detail with a financial planner to make sure you get it exactly right. For example the 10% test is based on assessable income so it will be radically different, if you own the properties with someone else. When owned in partnership then only your share of the net income (rent less deductions) is taken into account, where as, if you own them in your name only then it is the gross rent (ignoring deductions) that is taken into account.
