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July 3, 2016
You are right, it can prove a complex matter, so let's clarify. When you, as an age pensioner, rent out your granny flat, the rent (excluding expenses) is counted by the income test. However, where you have a lodger in your home, you can choose a simpler formula that counts expenses as 30 per cent of the rent, to which you can include any mortgage interest or even rent, if you yourself are living in a rented property.
If the area being rented is a self-contained living area, and rented to anyone other than a member of your immediate family, it will also be assessed by the assets test. Its value will be based on a pro-rata percentage of the floor space of the overall property. Obviously, if you have a home in a capital city, this asset value could amount to many tens or even hundreds of thousands of dollars.
However, if the area being rented is an integral part of the customer's home, for example, a room with an en suite rented to a lodger but with no kitchen or lounge area, it will not be counted by the assets test.
If you have a mortgage on your home, it is usually ignored by Centrelink because the home is not counted by the means tests. But if you are renting out a granny flat that is being counted as an asset, and you have a mortgage, then a portion of the mortgage will reduce the asset value being counted. For example, if the area of the self-contained granny flat being rented is 15 per cent of the total value of the home, the asset value counted will be reduced by 15 per cent of the value of the mortgage. Similarly, the income test will reduce the net rent being counted by 15 per cent of the mortgage interest.
You mentioned a property investment loan – that is a mortgage on a property that you own but are not using as your residence. Only the net value of the asset is counted by the assets test; that is the test counts the value of the property reduced by the loan. This is also true for margin loans used to buy shares and managed funds.
There is a twist if you have used a loan to buy financial assets such as shares or managed funds in that the income test subjects the gross (not net) portfolio value to deeming; that is for a couple, the first $80,600 ($48,600 for singles) is deemed to earn 1.75 per cent and the balance, 3.25 per cent. Note, also, that the deemed income is NOT then reduced by the interest paid on your loan.
Hopefully, the water is now much less muddy!
Recently we sold our home and business and are now renting for 12 months. The question is how to protect and increase our capital of $3 million now and the $1.5 million remaining in May 2017, after we buy the next house. The aim is to have an income stream to fund the last segment of our life. We also would like to leave assets for our children who struggle to get into the current property market. We are fit and active, in our late-60s, have been self-employed most of our lives. I actually miss working and have been looking at businesses to buy. My ideal is to invest $100,000-$300,000 in a small business, set up the necessary controls, put in 25-30 hours a week myself and hopefully net $2000 a week. The puzzle is to know where to place the money since term deposits no longer yield enough? A.A.
Just as setting up a business requires you to take time scout around and research your market environment and its opportunities, so it is with placing investments.
All the signals tell me this shock wave emanating from the Brexit decision is not going to be a short-term phenomenon. I have long argued that the history of monetary unions between disparate countries indicates that the euro under its present structure is not viable in the long term. It has already caused recessions with high unemployment in countries such as Greece and Spain that have lasted longer than Australia's Great Depression in the 1930s.
Looking at the geopolitics behind it, the nationalist wave that propelled Brexit is similar to that behind Donald Trump's extraordinary rise and must reduce the odds of his winning the November presidential election. Such a win, if it were to occur, would be likely to produce another disastrous "Lehman moment" across world sharemarkets.
So for now, your strategy should be on capital preservation rather than capital growth. In such an environment, I would be looking at capital guaranteed investments for that money set aside for your new home and I can't go past term deposits in banks or institutions that carry a government guarantee on the first $250,000 invested. Google Canstar and Infochoice for the best rates.
Also, if you do not have enough for a comfortable retirement, consider maximising your super contributions.
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