3 weeks ago
3
February 4, 2026 — 5:01am
I am a self-funded retiree receiving a defined benefit pension of about $120,000 a year. Three years ago, I bought a small investment property for $610,000 intending to eventually pass it on to my son. The mortgage balance is now $495,000. The property is worth about $725,000, and my son is in a stable financial position and able to service a mortgage.
My plan is to sell the property to him for the amount of the mortgage plus about $50,000 to cover my original purchase costs. In effect, I would be gifting him roughly $175,000, which would allow him to break into the Sydney property market. Are there any tax or other implications for me in doing this?
The main tax issue for you will be capital gains tax. Based on the figures you have provided, the capital gain should be relatively modest. After allowing for purchase and selling costs, your gain may be about $100,000, which would be reduced to $50,000 after applying the 50 per cent CGT discount. That net gain would be added to your taxable income in the year the sale contract is signed.
Once the sale is completed, your existing mortgage will be discharged, and your son will need to arrange his own finance. I suggest engaging a mortgage broker to ensure he obtains the most suitable loan and the best available interest rate.
My husband, 66, and I, 68, are retired and receive a part age pension totalling $18,400 a year. We jointly own an investment property purchased eight years ago for $345,000, which we expect to sell for about $700,000. There is an outstanding mortgage of $230,000. We understand capital gains tax will apply and would like you to explain how the gain would be calculated in our situation, including the impact of joint ownership and the CGT discount, and provide a broad indication of the CGT that may be payable.
After the sale, the net proceeds will be contributed to my husband’s super. I currently have $373,000 in super and my husband has $85,000. Are there any tax or super implications we should be aware of?
You certainly need expert advice here because there are certain strategies you can use to enable you to slash the CGT that may be payable. If we assume the net taxable capital gain is $340,000, this will be reduced to $170,000 thanks to the 50 per cent discount.
As the house is owned jointly, 50 per cent of this will be added to each of your taxable incomes in the year the contract is signed. Given you both have under $500,000 in super, you may be eligible to use the catch-up contribution strategy, which enables you both to make larger than usual tax-deductible contributions to super.
However, as you are over 67, for you to be eligible to do so, you will be required to pass the work test, which involves working at least 40 hours over 30 consecutive days in the financial year you intend to make the contribution.
Most resourceful retirees have no trouble qualifying. Just make sure you talk to your accountant. There’s a considerable sum of money involved here, and you can’t afford to get it wrong.
For the age pension assets test, are assets assessed on a net basis? For example, if you have an investment property with an outstanding mortgage, is the loan deducted from the property’s current value?
Provided the loan is secured by a mortgage over the investment property, the value of the property for assets-test purposes is reduced by the amount of the outstanding loan. This would not apply if the loan was secured against an exempt asset test, such as your home.
Can you explain how an approved secondary development, specifically a 60-square-metre detached granny flat, that is located on the site of your primary residence would be treated by Centrelink for calculation of the pension, both under the asset and income tests? How is that treatment different, depending on if the granny flat is rented out to tenants, as opposed to being used for free by family or friends as a guesthouse?
The team at Services Australia tell me the granny flat would be included in the income and assets test if the building was rented to a person other than a near relative.
If the granny flat is vacant or let to a near relative, then it is not included in the income and assets test. That is also the case if the pensioner did not pay for the building and the person who did pay for it lives there.
Noel Whittaker is author of Retirement Made Simple and other books on personal finance. Questions to: [email protected]
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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