Make your home your cash cow

Your home is not just your castle; it can also be your cash cow. This may change, so take advantage of it while you can. The financial perks of home ownership in this country are considerable, thanks largely to our taxation system and pension eligibility rules.

There is now debate about whether the generosity extended to home owners can continue, given the federal government's imperative to eventually balance its budget.

Sinking money into the family home is one of the best investments you can make. When you sell it, no matter how big the capital gain you will not give one cent to the taxman.

But if you sold an investment property or shares, you would pay capital gains tax (CGT) at your marginal tax rate. For example, you could pay up to $139,500 in tax on a $300,000 gain on an investment. This assumes you are in the top tax bracket (46.5% including Medicare levy) and have held the asset for less than a year. If you have held it for more than a year you will qualify for a 50% discount on the CGT.

The capital gains tax exemption for the family home is estimated to cost the federal government $13.5 billion a year, prompting discussion about possible changes to the tax treatment of housing.

It would take a brave government to tax the family home and a paper published last year by the Grattan Institute says levying capital gains tax on owner-occupied housing could have big negative social and economic side-effects. The think tank argues in favour of abolishing the 50% capital gains discount on investment gains.

Profits made on the sale of the family home can be CGT free even if you have rented it out. Of course, you do have to comply with a set of rules.

For example, you might move interstate or overseas for work, or decide you want to rent out your home because of the strain of meeting the mortgage payments or some other reason. You can do this for up to six years at a time, enjoy all the benefits of negative gearing and still pay no CGT when you sell, as long as it's nominated as your principal place of residence for the period you are claiming the exemption.

Owning your home can also pay off when it's time to say goodbye to a regular pay cheque. Starting retirement with the most valuable, fully paid house you can afford is a good strategy.

You can own a home worth several million dollars and still receive all or part of the aged pension, because your home is not included in the assets test applied to pension eligibility, whereas all other assets such as cash deposits, shares, superannuation balance and investment properties are.

Although the assets test has a slightly lower threshold for those who own their own homes, this effectively only takes into account the value of the family home up to $142,500. As a result, many households with substantial property assets receive age pension payments, with almost $20 billion - around half the total - going to households with more than $500,000 in net assets, according to the Grattan Institute.

But it points out that including owner-occupied housing in the age pension assets test raises significant concerns about hurting asset-rich but income-poor households. It argues an equitable solution might be for the government to provide what is in effect a no-interest reverse mortgage. This would enable people who fail the asset test due to the value of their home to still receive the age pension, while the government accumulates a claim against it, which it would reclaim when the home was transferred or sold.

Saving tips

You don't need to move house to get a better mortgage deal. Autumn is a time of change, so why not review your home loan?

The mortgage market continues to be highly competitive with historically low fixed and variable rates available. So make sure you have a loan that is working for you. Over the past five years the big four banks have not passed on as much in interest rate cuts as some other lenders. Shop around and consider other lenders such as building societies that specialise in home lending. You may be surprised how much you can save.

Always check the features, rates and charges. And, most importantly, only borrow from a lender you can trust, with a track record of offering good rates in the long term - not just a "good deal" today. Expert advice can also be found by looking at independent ratings and awards.

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