[Jarred Santos]

Hello, dearest YourLifeChoicers!

Every once in a while, we get messages from members in great need of advice. Here’s one sent in by Harry M. titled ‘Can you help please?’

We are a retired couple who, 30 years ago, after my father died, we were made an offer by my late mother to sell our home and move into an investment house that my parents purchased and that would have come to us after my mother passed. The agreement made (not in writing) was that we would pay out the house, and it would be ours. My mother never passed on the title to us, and we have lived in the house for 30 years, renovated, landscaped, etc and paid all bills, etc. Believing this was our family home.

When she died, several of my siblings tried to take the house from us as it was not in our name, and after long and prolonged legal proceedings, we ended up taking the estate to the Supreme Court. The estate caved in and signed over the house to us. We have now had the house in our name for almost 5 years.

My query is that we would like to downsize (as we have spent a reasonable portion of my super in legal fees fighting the estate) but have been told that as pensioners, because we have not had the house in our name for at least 10 years, downsizing would cause problems with taxation and our pension.

We would like to downsize, put some money back into our super account, and live more comfortably. I am currently drawing down the minimum 5% of my super, and my wife’s super is in income steam mode. We are on a full-aged pension.

Your help, advice, and guidance would be most appreciated. No one can give us a straight answer yet. How do we clarify our position?

YourLifeChoicers, can you help Harry? Any advice is welcome.

[Jeff]

You really need to speak to a financial advisor and/or a solicitor about this.

[John De Ravin]

I agree with Jeff that it may be necessary to speak with a financial advisor or a solicitor.
I see three potential issues.

1 Given that Harry has not (technically) owned the house for at least 10 years, are Harry and his wife even permitted to make “downsizer” contributions? (To me it looks like the answer is “no”, but it might be worth talking to the ATO or a solicitor; maybe the ATO would be prepared to take the view that Harry has owned the house since the date his mother passed away, for example).

2 Is capital gains tax due on the proceeds of sale of the house? (I cannot see how this can be the case: Harry and his wife have lived in that house for the whole of the time since they acquired it (whatever that date is deemed to be) so the “own residence” exemption would seem to apply.

3 If Harry downsizes, will the additional financial assets impact the assets and income tests and therefore affect the pension amounts payable? (In principle, this is always an issue and this would not appear to be affected by the special circumstances in which Harry acquired the house. Whether there will actually be a reduction in the pension amounts payable will depend on the amount Harry receives on the sale of his property, and the amount that Harry then spends on the downsized residence. The normal rules of the age pension assets and income tests would apply. It is not possible to provide a detailed answer to this question without knowing much more detail about Harry’s current situation.)

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