Hi Norm
A situation such as this is really worth spending a couple of hundred dollars on to get expert advice from a financial planner.
You are sure to have some experienced financial planners in your local neighbourhood, check the yellow pages. Also, the major banks offer financial planning services at a modest cost. A qualified financial planner knows the Centrelink rules and can help you and your mother organise things properly.
Having said that, there a number of issues here which are the framework of the deal.
1. Your mother's pension. Assuming she owns the property outright, she is living 'rent free' and would probably be eligible for the pension and the associated benefits such as municipal rates concession, insurance concession etc.
2. Her pension will be affected not by converting the capital from property to cash, but from the income derived from either.
3. So, if she sells the property for market value to you, it is not the payment of capital installments but the payment of interest which would affect her pension. She would also need to declare the interest as income and that means tax returns. The interest income would also affect her pension on a pro rata basis.
4. The 'Deeming' rules apply. If the capital is in a non-interest bearing account, the account is still 'deemed' to earn x% interest, and her pension will be affected accordingly. So, too, with the sale of capital assets. Even if you don't pay interest on the outstanding balance, it will be 'deemed' that you do. You will have to declare the deemed amount in yur tax return and so will she.
5. Income thresholds. These are very generous - up to about $26,000 from memory, before a person's aged pension is affected.
6. If you are thinking about buying the property from her, and paying her the capital in installments, plus deeming interest, and in return she pays you rent so she can claim the rent assistance subsidy, ??? This sounds somewhat fraudulent to me. I repeat, seek expert advice.
7. Your situation: all tax and other govt departments work on the basis of 'market value'. This includes sale and purchase of assets, interest paid or received on amounts outstanding, and rent paid or received on property. Even if you don't charge her rent, it will be deemed that you do.
8. Stamp duties and Capital Gains. There is no 'natural love and affection' between parents and children regarding stamp duty exemptions. This will cost you money. If the property is your mother's principal place of residence, then capital gains will not be assessed for tax purposes for her.
9. Why do you want to do this? If this is for 'estate planning', or if you think she will be requiring nursing home accommodation in the forseeable future and she is wanting to dispose of her assets now, consult with a planner.
10. There are 'gifting' regulations, you should check these out.
11. Attitude of the government: You may be a loving son but your mother is legally vulnerable at your hands. You would have to demonstrate her security and welfare is uppermost in this transaction. Do everything with paid professional people and have everything well documented. The courts are very wary of elderly people being coerced by relatives who stand to benefit from the disenfranchisement of their elderly relative.
12. Good luck. Once you consider all courses of action and the ramifications of those actions you will both know where you stand.
Finally, Norm, many of us in the 'sandwich' generation now face having parents who will be elderly for 30 years or more. Some will be hale & hearty, others not so lucky. It is difficult and a highly emotive decision to make when one's parents are involved. I hope you are advised and informed well enough to know which will be the right decision for your Mother and for yourself.
Regards
Kristine
PS
Your Solicitor will be able to oganise a 'life interest' for her if she does decide to sell to you.
A couple of years ago the Agency I was with was called to list a property. The elderly occupant had just passed away and the relatives were eager to list and sell the property as soon as possible.
All went well, until their Solicitor contacted us to say the old lady did not, in fact, own the property, although she had lived there fifty years, her name was on the rates notice, and everybody thought it was hers.
Apparently, when her husband had died, he had left the property to a child from a previous marriage, but had left her a 'life interest' in the property. The owner of the property could not usurp this legacy just as she could not sell, mortgage or otherwise deal with the property. The property, though, was not in very good repair. She had no money or real authority to do repairs, just as a tenant generally doesn't, and the inheriting owner had no intention (or capacity) to repair or modernise, either. And of course, she couldn't afford to move to live elsewhere, so it was a bit of a Catch 22 situation.
The Law has a structure for everything. The knack is in finding the right structure for you.
I thought to put it into a HDT. She needs to remain living in the unit and is happy for me to "buy it from her and just make payments on a monthly basis" I guess it is like vendor finance.
