Nick Bruining Q+A: These are the Centrelink support payments you’ll need to dodge new capital gains tax rules

Question

I have held a parcel of shares for some time and am weighing up my options with the new capital gains tax laws starting next July.

I have read that people receiving Centrelink payments will not be liable for the new 30 per cent minimum income tax but I am confused about how that might apply.

Answer

The rules stipulate that assets sold after July next year will be subject to a new method of calculation. Where that calculation results in a capital gain, that gain will be subject to a minimum 30 per cent tax.

In essence, this is to thwart a strategy where people might “split” the sale of assets over two or more years to ensure any capital gain in a particular year is less than the level where an individual is liable to pay income tax.

The minimum 30 per cent tax is not payable if the individual is in receipt of any Centrelink income support payment during the financial year where the capital gain occurred. Eligible payments will include Jobseeker, the disability support pension, carer payment (but not the carer allowance) and the aged pension.

You should note that receipt of an income support payment does not mean you can avoid all income tax on the capital gain.

In your case, you will need to obtain a value of your share portfolio as of June 30 next year. When you sell, the change in value from the original purchase date to June 30 will be used to calculate part of your CGT liability, and is based on the current rules. That is, 50 per cent of the profit will be added to your other income in the year the share(s) are sold.

The growth above inflation after July 1 next year forms the second part of the calculation where you pay tax on the growth above the inflation rate from July 2027.

The pre-2027 capital gain figure is then added to the post-2027 capital gain and added to your other income. Tax is payable on that total at your normal marginal tax rates.

In the event you don’t have enough income to exceed the tax-free thresholds, the 30 per cent tax rate would be payable on the post-2027 gains.

If you receive a Centrelink income support payment, the 30 per cent minimum tax rate would not apply.

Question

I invested in property from a young age, and now my children are renting some of these houses from me.

I would like to give these houses to them, as they didn’t cost me much when I bought them.

I have been told that I will have to pay CGT, which I thought only applied if I sell the properties.

If I leave these houses in my will for my children, will they have to pay CGT?

Answer

CGT tax law flags any disposal of an asset as a potential trigger for the tax to apply. There are no exemptions for gifting.

If you transfer the title to your children, the market value at the transfer date is the value used to calculate your CGT liability and the transfer stamp duty payable by the new owner.

To ensure accurate values at the time of gifting, you must obtain an independent valuation from a licensed valuer.

If the properties were acquired before September 1985, no CGT would apply if the gift occurs before July 1 next year. If transferred after that date, CGT would apply from July 1, 2027 up to the date of transfer, with a minimum 30 per cent tax payable on the growth above inflation over that period.

If transferred as an asset of your estate through your will, CGT may be payable when the home is finally sold.

In effect, your children “inherit” your original cost base and date. However, they may be able to claim a “main residence exemption” from the date they acquire the property to when it is sold, as long as it is their primary residence.

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