Nick Bruining Q+A: Are age pensioners and those on Centrelink payments exempt from the capital gains tax hike?

Question

In recent articles about the Federal Budget, I have seen it said that people who receive a Centrelink payment will not have to pay the 30 per cent capital gains tax.

My wife and I receive a part-pension and also own an investment property which we may sell.

I was expecting to include half of the profit in my CGT calculations. Can you clarify how the new rules will apply to us?

Answer

Note that the changes are subject to consultation and are not yet law.

When Treasurer Jim Chalmers announced the changes on Budget night, the supporting papers included a special exemption for anybody in receipt of a Centrelink income support payment at the time of sale.

This includes people on a part-payment. The payments include the age, disability support and blind pensions, as well as carer payments and JobSeeker.

It does not extend to holders of concession cards such as the Commonwealth Seniors Health Card or the Low Income Health Card.

The current understanding is that the tax rate of 30 per cent is the minimum tax rate to apply and is essentially designed to thwart taxpayers from minimising tax liabilities by deferring asset sales to a low-income financial year.

The proposed new laws exempt Centrelink income support recipients from paying the minimum 30 per cent tax, but this is not a maximum rate.

If you sell the property before June 30 next year, the existing 50 per cent rules will still apply. That is, 50 per cent of the gross profit will be divided between the two of you, and you will each be taxed at your marginal rates of tax. If each of your total taxable income exceeds $32,773 next year, tax will be payable.

If you hold the property beyond July 1 next year, the 50 per cent rule applies up to June 30, 2027 and, in effect, your taxable income will have the 50 per cent discounted CGT income “fixed” as of that date.

Beyond July 1, 2027, 100 per cent of the profit from July 1, 2027 to the sale date, less an amount attributable to inflation, would be added to the fixed taxable amount attributable up to June 30, 2027. T

That total, again, is divided between the two of you, and you will be taxed at your marginal rates of tax.

Question

Before the new CGT rates take effect, we are planning on transferring a beach house we inherited in the early 1980s to our children.

We have been told capital gains will be payable, and we are wondering how this is calculated.

Answer

The information you have received is incorrect.

Assets acquired before September 19, 1985 are specifically exempt from CGT, but this will change if you defer the gift until after July 1, 2027.

In that case, it seems likely you would need to pay CGT on the growth in value from July 1, 2027 to the gifting date, less an allowance for inflation. On that basis, it may be prudent to effect the gift before next year.

Note that stamp duty will be payable on the transfer, based on the market value at the time of the gift.

Correction

In last week’s Q+A, an answer to a question regarding the proceeds of an investment property sale being contributed to superannuation contained an error.

We inadvertently failed to include a second calculation method that is sometimes used to determine the amount payable when a special extra Division 293 contributions tax applies. In essence, the amount charged is the lower of two calculated amounts — 15 per cent of the concessional contributions for the year, or 15 per cent of the amount above the adjusted taxable income threshold of $250,000.

In our reader’s case, the second method should have been used. With an ATI of $257,500 the Division 293 contributions tax would be 15 per cent of $7500, or $1125 and not the $20,100 figure stated.

Thanks to the many readers that alerted us to the error.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association