Here’s what to consider before selling

Question 1. I recently acquired Australian citizenship and would like to transfer my superannuation from other countries where I previously worked to my super account here. I am 62 years old. What are the regulations and implications of doing this?

Only certain foreign super funds can be transferred and there are contribution limits.

You can typically transfer over $330,000 based on your age and total super balance, and then that amount will count toward your nonconcessional contribution limit.

The rules and tax consequences are different depending on whether you are transferring the funds within the first six months of becoming an Australian resident, and there may be advantages to making the transfer during this period.

The ATO provides a comprehensive list of tax regulations and consequences.

Note that UK private pensions may not be transferable, I discussed this in a recent article.

Given the complexity and potential tax consequences, you should consider obtaining advice on your personal situation.

At a minimum, you should contact your Australian super fund, who may be able to help you.

On that note, Australia’s second fund, Australian Retirement Trust, can do just that and provide more details on how it can help here.

Question 2. We have an investment property that is negatively oriented and, after 10 years of ownership, has a market value that is less than the purchase price and the debt owed. The property is mortgaged with interest only payments and has been permanently leased.

Since interest rates will almost certainly rise, there is no likelihood of real gain in the future. The purchase price of the property, off plan, was $536,000, estimated market price today is $320,000, current mortgage is $580,000. Therefore, if it were sold today at $320,000, there would be a capital loss of $216,000 (over $330,000+ after buying and selling costs).

As the ATO treats capital gain differently than capital loss, the gain can only be offset with a loss and not with income – what strategies are available to liquidate this property in the short term (one to two years) or in the medium term (five years)?

With any individual property and as with any real estate market in general, the future price is difficult to predict.

Generally the advice around property is to make sure you hold it for a long time, the longer you hold it the more likely you are to realize a capital gain.

However, this is not always the case, and properties can underperform, normally due to one or a combination of:

  • Timing: buy/sell at the wrong time in the real estate market cycle
  • Price: You overpaid at the time of purchase
  • Location: some locations are not desirable
  • Property: The property itself is of poor quality.

If so, and if it is causing you stress, selling the property may be appropriate.

And having so much money tied up in an underperforming investment creates an “opportunity cost” where the funds could be invested elsewhere in a better performing and more appropriate investment.

Talk to real estate agents you trust to get an idea of ​​where the local market is headed.

As you said, you have now decided to sell.

It seems obvious, but the main goal when selling is to get the highest price.

Talk to local real estate agents you trust to get an idea of ​​where the local market is heading and if they have any potential buyers on their books.

As your property is leased, consider selling it at or near the end of its lease term to broaden the appeal of your property by making it attractive to both owner-occupiers and investors.

A secondary consideration is taxation. However, since you are making a capital loss, this is not a priority over the sale with appreciation.

As you pointed out, a capital loss can only be offset against a capital gain.

The good news is that you can continue to retain the capital loss for tax purposes indefinitely and hopefully in future years you will realize a significant capital gain on the sale of an investment and have the opportunity to offset the taxable gain against your loss.

Question 3. When to sell an investment property? My husband is a 58 year old defined benefit pensioner and we are considering selling our investment property as our tenants are leaving mid year. Should we wait until it reaches its storage age of 59 years or more than 60 years because the tax will be due on the capital gain?

As mentioned above, your main concern should be getting the best price.

However, in your situation, taxation is certainly an important secondary consideration. Depending on the taxable components of your defined benefit (DB) pension (untaxed, taxed, non-taxable), the tax consequences on capital gains could be substantial.

The taxation of a DB pension is complicated but generally yes, the taxable income is considerably lower once you reach the age of 60. So, all things being equal, selling the property and realizing a capital gain from age 60 would yield a better result.

The other strategy to consider is making tax-deductible personal contributions to the super to reduce your taxable income.

And if you have a total super balance of less than $500,000, you can consider using the concessional contribution deferral rules to increase the amount of tax-deductible contributions you can make.

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.

Before relying on any information, please ensure that you consider the information’s relevance to your objectives, financial situation or needs. To the extent permitted by law, no liability for errors or omissions is accepted by IFS and its representatives.

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