We are a couple with three children in high school and university. My income is $100,000 and my wife's is $36,000. I am 50 with superannuation of $65,000 and my wife is 45 with super of $10,000. We have a home, mortgage paid off, worth $350,000, which we are planning to renovate at a cost of $130,000, plus an investment property worth $450,000 with a mortgage of $375,000, which we have put up for sale. Should we go for a smaller investment property or continue with our existing investment property? Should we add more to our superannuation funds or should we invest in managed funds such as Platinum Asset Management? Is it a good idea to start a CommSec account and invest in securities? J.B.

With the ongoing rise in property prices, I suspect this would be a good time to hold on to your investment property. Looking ahead, you should be planning to pay off your renovation loan and add more to super via salary sacrifice between now and retirement. Your super savings seem quite low and you should be planning to accumulate as much as possible by retirement, hopefully more than $500,000.

Expecting a tax bill

My wife and I earn $90,000 a year each and have our first child due in March. We have two properties: our house is in both names and has about $150,000 owing, against a total value of $350,000; the second, an investment property in my wife's name, has $140,000 owing against a total value of $300,000. We are thinking of selling the investment property and using the money to pay off our current property and then buying another, larger property in the middle of next year. What scenarios can we consider with regards to capital gains tax, the interest on the loans we are paying and the baby bonus considering my wife is not planning to go back to work for six or more months? D.J.

You might want to hold on to the investment property for a while in the hope that property prices will keep rising at a rate faster than the interest rate on your mortgage, then sell it closer to the time that your wife ceases work. If your wife expects a fairly large capital gains tax bill, she can reduce her overall income in 2009-10 by salary sacrificing a large portion of her salary, perhaps even 100 per cent, between now and March, thus hopefully reducing the amount of income being taxed in the higher tax brackets.

An unhealthy conundrum

My wife qualified for the Commonwealth Seniors Health Card (CSHC) in July 2007 after we both retired. In the May 2009 Budget, the current Government amended the CSHC income test to include pension income and, following a review of our income in April 2009 by Centrelink, my wife's CSHC was cancelled owing to our income exceeding the $80,000 couple's limit. The Government's inability to get the legislation passed in the Senate meant the CSHC income test had largely reverted to the previous rules. We therefore decided to reapply to have my wife's card reinstated. My wife and I have no income-producing assets outside of our superannuation fund and therefore have no taxable income. All of our income, which does exceed the $80,000 CSHC income test limit, is gained from our superannuation fund and is therefore non-taxable. However we have recently been notified by Centrelink that we do not qualify because our income is too high. B.H.

The rules are fairly simple. The income test for the Commonwealth Seniors Health Card counts “adjusted taxable income” (taxable income plus foreign income plus total net investment losses plus employer provided benefits such as cars, above $1000, plus reportable superannuation contributions such as salary sacrifices). It ignores untaxed superannuation pensions, which are payable to people over 60. For couples, the test measures combined income even if only one is applying for the card. You indicate that you are not applying for a card, so I must assume you are younger than the age-pension age of 65. But you must be over 60 as you state you are receiving an untaxed super pension. It's a conundrum and you should lodge an appeal against the decision.

If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Helplines: bank ombudsman 1300 780 808; pensions 13 28 00.