Nick Bruining Q+A: Our separated daughter is moving back home. Can we collect rent and keep our full pension?

Question

My daughter has just separated from her husband and has decided to move back home with us.

She is a well-paid public servant and has said she wants to pay us board until she can re-establish herself in a new home.

As we are both full age pensioners with modest savings of about $45,000, we are concerned that any payments we receive will affect our Centrelink payments.

What amount could she pay us without it affecting our pension?

Answer

Centrelink treats such arrangements under a special set of rules. The good news is that any income received from most family members is specifically exempt from the Centrelink income means test.

The definition of family includes children, but also extends to siblings and parents. That is further extended to include step, foster and adopted family members.

If your financial circumstances change by more than $2000, you will still be required to notify Centrelink of the change within 14 days.

That is easily done through the my.gov.au website linked to the Centrelink service. This might occur if your daughter decides to pay you a lump-sum amount, even though it is unlikely to affect your pension payments..

Under the income test, the $45,000 in savings would be deemed to be earning just $4.33 a fortnight, which is well under the $372 a fortnight income-free area allowed for a couple.

The income under this arrangement is also tax exempt, so you will not need to complete an income tax return.

Question

I read last week’s story about how the Australian Taxation Office collects information from different sources and was interested to see cryptocurrency exchanges included.

I was under the impression that crypto has a special tax treatment from the ATO which is similar to the way gains and losses are treated with other foreign currency transactions.

I have been lodging my tax return for the past couple of years on that basis. Can you please clarify how gains from trading cryptocurrencies are taxed?

Answer

You are referring to special exemptions that may apply to some private foreign exchange (forex) transactions and, possibly, “balance test” exemptions which can be used by some businesses with forex account balances up to $250,000.

Importantly, these only apply to fiat currencies, which are government-issued currencies. Examples of fiat currencies include the Australian dollar, the euro and the British pound.

Forex-type exemptions cannot be applied to cryptocurrencies. There are some other limited circumstances where small gains or losses made in the process of buying goods or services using crypto may apply. In most cases however, crypto transactions are treated under the capital gains tax provisions of the Tax Act.

If you bought and sold a crypto asset within a 12-month period, then the full profit becomes assessable income and is added to your other assessable income for the year. You would then pay tax at your marginal rate.

If you made capital losses during the year, they can be applied against the capital gains made, or if no capital gains were made these losses can be carried forward to future tax years to be applied against future capital gains.

Like all other assets, a 50 per cent discount applies if the crypto asset was held for 12 months or more before disposal. Figures are always calculated in Australian dollars, so you will need to convert those transactions back to Australian dollars on the date the transactions occurred. This may or may not give rise to further profits or losses.

If you believe you may have made a mistake on your previous tax returns, you are best filing an amended return with the correct information provided.

By proactively correcting the errors, you may be in a better position to negotiate reduced penalties and charges, rather than waiting for the ATO to contact you.

In any event, if you are liable for tax, you will need to pay the shortfall.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association