Question 1. I’ve recently acquired Australian citizenship and would like to transfer my superannuation from other countries where I previously worked into my super account here. I’m 62. What are the regulations and implications of doing this?
Only certain foreign super funds can be transferred and there are contribution limits.
You can generally transfer across $330,000 depending on your age and total super balance, then this amount will count against your non-concessional contributions cap.
The rules and tax consequences are different depending on whether you transfer the funds across within the first six months of becoming an Australian resident, and there may be advantages in doing the transfer within this period.
The ATO provides a full list of regulations and tax consequences.
Note that private pensions from the UK may not be able to be transferred, I have covered this in a recent article.
Given the complexity and potential tax consequences, you should consider obtaining some advice over your personal circumstances.
At a minimum you should contact your Australian super fund, which may be able to assist.
On that note, Australia’s second-largest fund, Australian Retirement Trust, can do just that and provide further details on how they can help here.
Question 2. We have an investment property that is negatively geared and, after 10 years of ownership, has a market value less than the purchase price and the debt owed. The property is mortgaged with interest-only payments and has been tenanted continuously.
With interest rates almost certain to rise, there is no likelihood of any real gain in the future. The property purchase price, off the plan, was $536,000, the estimated market price today is $320,000, the outstanding mortgage is $580,000. Therefore, if sold today at $320,000 there would be a capital loss of $216,000 (more like $330,000+ after purchasing and selling costs).
As the ATO treats capital gain differently to capital loss, the gain can only be offset against a loss and not against income – what strategies are available to liquidate this property in the short term (one to two years), or mid-term (five years)?
With any individual property and as with any property market in general, the future price is difficult to predict.
Generally, the advice around property is to ensure you hold on to it for a long period, the longer you hold it the higher the chances that you will achieve a capital gain.
However, this is not always the case, and properties can and do under perform, normally due to one or a combination of:
- Timing: Buying/selling at the wrong time in the housing market cycle
- Price: You overpaid at time of buying
- Location: Some locations are not desirable
- Property: The property itself is of poor quality.
If this is the case, and if it is causing you stress, then selling the property may be appropriate.
And having so much money tied up in an underperforming investment creates an ‘opportunity cost’ where funds could be invested elsewhere in a better performing and more appropriate investment.
As you have articulated, you have now decided to sell.
It sounds obvious, but the main goal when selling is to obtain the highest price.
Speak with some estate agents in the area that you trust to get a feel for where the local market is heading and whether they have any potential buyers on their books.
As your property is tenanted, consider selling it at or near the end of its lease term to widen the appeal of your property by making it attractive to both owner-occupiers and investors.
A secondary consideration is tax. However, as you are making a capital loss, this is not as a priority when compared to selling with a gain.
As you have pointed out, a capital loss can only be offset against a capital gain.
The good news is you can continue to hold onto the capital loss indefinitely for tax purposes, and hopefully in future years you will make a large capital gain on selling an investment and have a chance to offset the taxable gain with your loss.
Question 3. When to sell investment property? My husband is in receipt of a defined benefit pension, aged 58, and we are considering selling our investment property as our tenants vacate mid-year. Should we wait until he reaches his preservation age of 59 or over 60 as tax will be payable on the capital gain?
As mentioned above, your primary consideration should be obtaining the best price.
However, in your situation tax is definitely an important secondary consideration. Depending on the taxable components of your defined benefit (DB) pension (untaxed, taxed, tax free) the capital gains tax consequences could be substantial.
Taxation of a DB pension is complicated but generally yes, taxable income is considerably less once you attain age 60. So all other things being equal, then selling the property and realising a capital gain from age 60 would result in a better outcome.
The other strategy worth considering is making personal tax-deductible contributions to super to reduce your taxable income.
And if you have a total super balance below $500,000 you can look at using the carry forward concessional contribution rules to increase the amount of tax-deductible contributions you can make.
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.
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