Legal Tip 342: Joint Purchases of Property Can Affect the Pension

Discussion in 'Legal Issues' started by Terry_w, 28th Jun, 2021.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I have seen a number of cases where parents go on title to the property of the child because of serviceability issues. There are also cases of siblings and other relatives as well. They do this to help the adult child purchase the property by qualifying for the loan with their income used as well. It is not possible for a parent to provide an income guarantee where they are not a legal owner of the property.


    Usually, neither the parents and child don’t understand the consequences of this, especially the consequences when they want to apply to get the aged pension. If the parent is not living in the property then the property will count as an asset for the assets test, and the notional rent income for the income test.


    Example

    Homer is a sole parent; his son Bart wants to buy a property and goes off to a broker who tells him his borrowing capacity is $200,000. The broker suggests getting Bart’s dad to ‘guarantee’ the loan so he can borrow more.

    Homer agrees and says he doesn’t need advice as he trusts Bart. They are new at this and don’t seek legal advice on the transaction, just using a conveyancer to transfer title.

    All goes well. ‘Bart’ purchases a property for $800,000 and after Homer signs some documents he never thinks about it again.

    20 years later…

    Homer goes and applies for the aged pension and they discover he owns part of a property other than his main residence and he is way over the assets test threshold.

    Homer loses his ability to get the full pension because the property has appreciated so much.

    Homer then discovers he owns 50% of Bart’s property – to make it worse, as Joint Tenants.


    Transferring title will

    - Trigger stamp duty

    - Trigger CGT for Bart (he has never lived there)

    - Result in Homer still not qualifying for the pension

    o Because if it is a disposal for no consideration the deeming rules will apply

    o Because if Bart buys it from him at market value he would have the equivalent value in cash.

    There is a solution though – wait for a future post.
     

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