The explainer: why you should have an interest in gifting
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The explainer: why you should have an interest in gifting

My husband and I are in our 70s, part-pensioners and asset tested. We have no superannuation or annuities. Our savings are in term deposits of which we receive per year $5000 less than estimates based on deeming points. On maturing of term deposits we usually take an interest rate lump sum, which in each case is far less than $10,000. Six years ago we were told by Centrelink that if we take a lump sum up to $20,000 we do not have to report it, but if we take more we do need to report it and provide evidence on what we have spent that amount on. Is this rule still in place?

A department spokesperson tells me the receipt of interest on a term deposit is not considered to be a lump sum payment or income, however what you do with it may affect your payment. Pensioners are required to advise the Department of Human Services of any changes of $2000 or more in their financial assets - if they add this amount to their bank account, they will need to advise the new balance.

Similarly, they need to advise the department of any changes of $1000 or more to their combined assessable assets - that is, non-financial assets. This includes (but not limited to) the value of goods, cars, boats, furniture, real estate (including real estate in other countries), personal property, interest in any property, trust or company, and any other right or interest in any other asset (including assets in other countries).

If a pensioner reduces their financial assets by a large amount without purchasing an asset, the department may ask for details and some form of supporting documentation. This allows the department to investigate if deprivation and/or gifting has occurred.

The gifting rules are designed to stop people from giving money away their assets to gain a higher rate of payment.

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I am a director of the trustee of a charitable foundation. The trustee invests in listed shares, mainly LIC’s and applies to the Australian Taxation Office for the refund of franking credits, as the fund is exempt from income tax. It appears that the foundation could be another victim of Labor’s tax grab. Can you please clarify.

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I have been advised that charities will be in the same position as pensioners – they will be exempt from the proposed rules.

Labor’s proposal, if it gets into power is to disallow the payment of cash for franking credits to investors who pay no income tax. This is of concern. However, I have heard that there is the possibility that existing securities could be grandfathered until they are replaced over the next seven years. What does that mean?

I have not heard of this proposal, but I suppose it would mean that investors would be able to claim excess franking credits on existing shares but not ones that had been more recently purchased. I cannot imagine it being legislated in view of the immense complexity it would cause.

I have a home with a large loan and an investment property portfolio of three residential properties. Investment property A was recently sold with a large loss and has a residual loan due to negative equity. Investment property B will soon be sold for a large gain. Both sales will occur in the current financial year. Overall the total capital gain/loss from those two sales is negligible. Investment property C will be held long term and has no mortgage. All properties are cross-collateralised by my single lender. Can I transfer debt/loans from investment properties A and B to investment property C which will be held long term? Can I use the full sale proceeds from the sale of investment property B to pay down my home loan?

Illustration: Simon Letch

Illustration: Simon Letch

You cannot rewrite history, interest on a loan is only tax deductible if the borrowed money is used to produce income. It does not matter where the loan is secured, it is all about tracing how the money is spent.

If you are seeking tax deductibility, an option may be to sell the third property and then re-borrow for another investment property. The interest on this last mentioned loan would be wholly deductible.

Noel Whittaker, AM, is the author of Making Money Made Simple and numerous other books on personal finance.

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