Question: Due to COVID-19, I might need to sell my investment property, but am worried that the proceeds will mean that I lose access to JobSeeker.
I have little equity in it, so most of the funds would go to repaying the mortgage. I also have a mortgage on my home, so am in a bind.
Answer: You are not the only one in a bind, with many losing their jobs and having to sell assets to meet living expenses.
Currently the asset test has been waived for JobSeeker (or ‘Newstart’ as it was previously called), but this will be re-instated from September 25.
For home owners, this means you can have assets of $268,000 if you are single, or $401,500 if you have a partner, before losing access to JobSeeker.
The asset test does not include the value of your principal home.
With an investment property, if the debt is secured against the investment property, then it reduces the amount that is counted in the asset test so that only the net amount is included.
However, if you have secured the investment property loan against your main residence, then it does not reduce the amount counted within the asset test, as the main home is an exempt asset.
If you have used both properties as security, then the loan will partially reduce the amount included in the asset test, depending on the value of both properties.
In summary, if you only have a small amount of equity in your investment property then selling it and repaying the associated debt won’t have a negative impact on JobSeeker.
In fact, depending on how the loan is secured, it may be advantageous when looking at government income support payments.
Hopefully you are in a position to consider other factors as well, such as any tax implications and, ultimately, getting a good price for your property.
Question: I am 61 and working full time. I have a mortgage and a modest super account. Is it best to put any spare money into my mortgage repayments or into super?
Answer: The two most valuable financial assets for many Australians are their home and their superannuation.
So, you have raised a very common question about where best to invest your surplus funds.
The answer to this question depends on some variables, including your personal circumstances.
Paying down the mortgage has the psychological advantage of becoming debt free, which is liberating for a lot of people. This also provides a guaranteed rate of return (i.e. whatever your current home loan rate is; albeit rates are currently very low).
But when you put money into your mortgage, it is from funds that you have already paid income tax on.
Conversely, you could use pre-taxed salary, via salary sacrifice, to make additional super contributions.
This is a very tax-effective way of building savings as your pre-tax savings amount will be larger than your post-taxed amount that you could put towards your mortgage.
However, you should be aware of the super contributions caps so you do not exceed them.
Given your age, your super savings may be further enhanced via a ‘transition to retirement strategy’, but it would be best to seek personal advice from a financial planner in relation to this.
Over the long term I would expect super returns to outperform current mortgage rates, but over the next few years it is impossible to say.
As you are over 60, you will be able to access your super tax free once you retire or reach age 65, whichever is sooner.
At retirement you could pay out any outstanding loans via a tax-free super withdrawal, so I would concentrate on building your super savings.
Craig Sankey is a licensed Financial Adviser and Head of Technical Services & Advice Enablement at Industry Fund Services.
Disclaimer: The responses provided are general in nature, and whilst they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.
Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.