How to invest in this underutilized mortgage arrangement
Question 1. Is the Home Equity Access Scheme available for properties in a Manufactured Home Lifestyle Village? In this village, the house is owned and can be sold, but the land is rented by the village owner.
Centrelink’s Home Equity Access Scheme (formerly Pension Loan Scheme) is a reverse mortgage arrangement that older Australians can use for a tax-free voluntary loan from Centrelink.
It has been underutilized in the past, but for those with an old age pension or more, it’s a great option if you want to receive regular extra income.
The loan granted is generally very conservative and does not provide a “negative equity guarantee”.
Also, you don’t have to post 100% of your property as collateral, so let’s say you want to make sure that at least 50% of the property’s value is passed on to your children or other beneficiaries, you can only name a 50% percent security, and Centrelink will take this into account when determining your maximum loan amount.
Customers can designate a fortnightly loan repayment amount up to 150% of the maximum pension rate.
You can either choose to receive:
- The maximum amount, i.e. 150% of the maximum pension payment rate, or
- A percentage less than 150%. For example, 120% fortnightly or 80% fortnightly, or
- A fixed flat rate (‘fixed’ type of loan) eg $500 per fortnight.
Coming directly to your question, any property in Australia (primary residence or investment property) in which you have an interest can be used as collateral for the loan.
Services Australia will register a legal charge on the title to the property offered as collateral and any costs associated with registering or removing the charge must be paid by you or added to the outstanding loan balance.
The property offered as collateral will be independently valued by a licensed appraiser appointed by Services Australia (at no cost to you). Note that you must have a minimum capital of at least $10,000.
I haven’t come across your exact situation so I suggest you confirm directly with Centrelink, but hopefully there’s a good chance you are.
Finally, they also provide a handy calculator that can show you how much you can receive under the scheme and the corresponding loan, in the form of tables and graphs.
Question 2. I have several investment properties, am 55 years old and work full time for about $50,000 a year. I have no other investments apart from my employer’s retirement pension. I want to sell a property and put the excess funds into a super fund to diversify my investments and take advantage of tax benefits in retirement. I have owned the properties for a long time so the appreciations will be significant.
How can I maximize my pension contribution deductions to minimize capital gains tax? Thanks
It’s a good idea to diversify your investments, it’s investment rule 101. And holding investments in a tax-advantaged vehicle like super is also a good idea.
Seek to maximize your tax deductions to reduce the net capital gains tax you will pay. One way to do this is to claim a tax deduction on your super contributions.
This would then transform these contributions into “concessional” contributions which have an annual cap of US$27,500.
Your SG employer contributions also fall under this ceiling.
If you earn $50,000, your employer contributions should be approximately $5,250 ($50,000 x 10.5%). This leaves you with $21,750 available to claim a tax deduction.
If you have a total super balance of less than $500,000, you can also use the “carry-over rule” and use “unused” concessional contributions from previous years, this would be perfect for reducing capital gains.
The amount “carried over” could be substantial and allow you to make tax-deductible personal contributions well in excess of $27,500.
You can check this figure via your ‘MyGov’ login (see example below). You should also seek personalized tax advice.
Question 3. We closed our retirement accounts with an industry fund two years ago and now regret the action. Can we start another? We are both 84? Our funds are in term deposits.
If you don’t have super accumulation funds, then unfortunately no, you cannot start another super pension as your age now prevents you from contributing more funds to the super.
To contribute to the super, you must be under 75 years old.
That’s why it’s important to keep the funds in the pension system because you can’t get the funds back into the super after that age.
I’ve seen a lot of people cash in their super simply because they “can” only to regret it later.
Craig Sankey is a Certified Financial Advisor and Head of Technical Services and Advisory Enablement at Industry Fund Services
Disclaimer: The answers provided are of a general nature and although inspired by the questions asked, they have been prepared without taking into account all of your objectives, your financial situation or your needs.
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