The Courier-Mail

DOWNSIZING PUZZLE HAS DOWNSIDES AND UPSIDES

- NOEL WHITTAKER Noel Whittaker is the author of Making Money Made Simple and other finance books. His advice is general in nature and readers should seek their own advice before making any financial decisions. Email: noelwhit@gmail.com

I AM 64, my husband is 70, we are retired and live on combined fortnightl­y PSS super payments of $3038. We own our home outright, and have a $380,000 mortgage over an investment property worth $1 million, which earns $49,000 rent a year.

We are thinking of renting out our present home and renting a smaller place to live in so we can travel. Is this a good idea? Our pensions are tax free so how would the tax on our rental income be affected?

If you do not intend to return to your existing home after you leave it, I wonder at the wisdom of retaining it. It is bound to drop in value once you move out and tenants move in, and it may take a long time to sell if you eventually change your mind.

The rental income will probably be tax free because you are under the threshold, but this is something your accountant will be able to confirm.

A better option may be to sell the house, buy the place where you intend to live for the rest of your life, and invest the balance into superannua­tion in your name as a non-concession­al contributi­on. MY wife and I are 71 and 67 and retired. We fund our annual living expenses of $60,000 from combined super of $295,000 plus part age pension. Our home is worth $2 million and we are considerin­g selling it for something smaller, and to release capital to live on. Based on these figures, how much capital should we keep to see us through to our mid-80s?

How much you will need depends on a number of factors that include how long you will live, the state of your health, the inflation rate, and the earning rate on your funds.

Your situation is further complicate­d by the fact that your home is an exempt asset now, but when you downsize to a cheaper property, the excess funds will become assessable and you may lose all or part of the age pension.

Make sure you talk to your adviser and do your sums before you sell. I HAVE a $200,000 mortgage on an investment property worth $370,000, which is breaking even and not providing any negative gearing benefit. I am thinking of refinancin­g the loan and borrowing an extra $100,000. I would then invest $50,000 in shares and contribute $50,000 to my super.

Would I be able to claim this as an investment cost and regain the negative gearing benefit for the property, given I am using the funds for investment purposes, although not for property investment?

You can claim the interest on that portion of the loan that is used to buy income-producing shares, but no deduction is allowed for interest on money borrowed to invest in superannua­tion.

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