My husband and I own two investment rental properties which we have been using as a negative for almost 10 years. They did not run at a loss for the 2022 tax year. He earns $130,000 a year and depends on it to reduce his taxable income. I earn $77,000 a year. To reduce our tax in the future, we consider whether we should buy another property, sell the property and buy a fully fitted one, or spend the money on the other properties. One of the properties currently pays no interest as it is fully offset by our savings. I was advised years ago to start paying off the biggest loan after we paid off our own home loan.
You should never make investment decisions for the sole purpose of saving tax. Any tax savings should be the cream of the cake. Selling one property and buying another can be an expensive exercise as there can be capital gains tax on the sale, and of course stamp duty and other charges on the purchase of the new property.
But even if you bought a property in your husband’s name for, say, $500,000 and borrowed $500,000, the net rent should be at least $15,000 a year and the interest should be around $30,000. $ per year. He is in the 39% tax bracket, so a loss of $15,000 would save him only $5,850 in taxes and he would still be paying $9,150 out of pocket to make up the shortfall.
A better option may be to maximize your tax-deductible superannuation contributions – you are entitled to $27,500 per year, including the employer contribution, and take advantage of the fact that your investment properties are now contributing to your income without harming it.
My wife is 65 and I am 63. We have $850,000 in super between us. We donated $100,000 to our daughter in 2021 to help her buy a home, and we want to give our son a similar gift later this year. We plan to transfer the money to our son’s bank account, is that ok? We understand that any donation made within the five years preceding the application for the old age pension will be considered an asset. When we finally apply for the old-age pension, what kind of documents do we have to produce for the money given to the children as a gift?
Given your age, you are free to make unlimited donations whenever you wish, and as you point out, donated money is held as private property for five years from the date of the donation once you are eligible for the old-age pension. I’m sure the fact that the money went to the recipient’s bank account would be proof enough for Centrelink.
I’m 63, earning $152,000 a year, and sacrificing my salary to the max. You mentioned that people nearing retirement might be better off focusing on making the maximum pension contribution, rather than paying off the mortgage. Given that interest rates are on the rise and superannuation returns could be somewhat uncertain over the next couple of years given the state of the world, I wonder if it’s not better I’m just paying off the mortgage.
Because of the way the numbers work, the rate doesn’t matter much if the term is short. In your case, you may be only two years away from retirement and you are already maximizing your superannuation contributions. I agree that rates are rising and superannuation returns cannot be guaranteed over the next two years. So I suggest that focusing on paying off your mortgage is a good way to spend your excess funds.