Q: I been contracting for the past 10 years and have 3 and at times 4 regular clients. I never had income protection insurance but recently was started developing anxiety issues and currently on prescribed medication.
A few friends have suggested I should look into income protection. As I’m on medication do you think there would be an issue, thanks?
A: HI Ben,
If you are currently on medication for anxiety, you will have trouble getting income protection now without a mental health exclusion, if not, a decline all together. As always, it's best to take this stuff out when you are fit and healthy and you don't think you'll need it. Insurers would go broke accepting policies for people who were about to claim.
You could always give it a go and request a pre assessment with some underwriters but the first thing I'd be doing is seeing what you might already have in place in your superannuation fund.
Let me know if you want a hand with anything.
Q: Hi, I finished up with my employer of 18 years yesterday and have a good sum of money to invest. What options are there to get a reasonable return instead of the money sitting the in the bank?
A: Hi Matt,
There's obviously a lot of things to consider when looking making a decision such as this.
If you are investing it, you need to decide on the most appropriate structure to invest this money in. Is it just in your name (with any tax and asset protection consequences), spouses name (with any tax and asset protection consequences), superannuation (with tax, asset protection, preservation consequences, or a company or a trust structure. The answer to this question will very much be determined by your situation and also the investment strategy you do take.
Then, the actual investment. Risk and return are related. If you want to achieve a return greater than cash in the bank, how much risk are you willing to take and for how much return. How much risk do you NEED to take. I believe diversification is important. Don't just invest in 1 asset class (invest across Australian shares, international shares, fixed interest etc) and don't just invest in 1 or 2 assets within the asset class, diversify away any singular asset risks.
That being said, some ideas that are typical solutions for people would be - use the funds to pay down your home loan (if you have one), then if appropriate, redraw an investment loan and invest those funds (that way you have reduced the non deductible loan and now have tax deductible investment loan). Alternatively, if you have no home loan, you may look to invest in your name or your spouses (if you have one), with whoever has a lower marginal tax rate. You might also look at contributing to superannuation, keeping in mind non concessional contribution caps of $100k per annum (or up to $300k in one go by bringing forward your next 2 years contribution cap as well) but I would only be going down that path if you have paid off your mortgage, are nearing preservation age and don't have yourself or your spouse with a NIL marginal tax rate - I have clients with spouses who don't work so why would we want to make additional non concessional contributions to superannuation where you are taxed at 15% where you can invest in the spouses name at 0%. Obviously, pre tax (concessional) contributions are still going to be appropriate if you have taxable income.
If you would like, I can arrange a zoom meeting with you to discuss with you more specific to your situation. My email address is email@example.com
Just wanting to work out my concessional contributions for the financial year ending 30 June 2019.
I do not want to exceed the $25k Cap.
Do I calculate my Salary Sacrifice and Employer Contributions from 1 July 2018 to 30 June 2019, or by the actual amounts that were deposited into my Account. I know there is a timing difference as it is generally deposited by the 21st day of the month after its been earned/sacrificed.
Many thanks in advance.
A: Hi David,
It is based on when the funds are actually received by the super fund.
Lets say your employer pays you SG via super stream on the 30th June 2018 so that is counted for their purposes and probably your salary for the 2017/18 financial year. But if that money is received in the super fund on 1 July 2018, that will count towards your 2018/19 contribution cap.
So get the details direct from your superannuation fund on how much has been received this financial year, then work closely with your payroll on when exactly they will pay super contributions.
Being contributed in the month after it's earned is common, but some employers bring forward June's superannuation and actually pay it in June so it does fall in the same financial year. If not, and they won't budge, then remember May's will be your last month and alter your may salary sacrifice to whats required.
Q: Hi everyone, I have a question about my Super, I am 61, Lately I have been watching my super with AMP,( with them for many years) and it appears that half of my return goes in Fees and Charges? is this normal? by my calculations, and my hours being cut down, I think I will end up with less than I have now. Do I need to find another fund ?
A: Hi Vicki,
Knowing AMP, you are probably paying pretty exorbitant fees which would be hurting your net returns.
I would definitely review your fund and look for a fund that can provide an appropriate asset allocation for you at the lowest cost.
If you would like, I can review your superannuation fund, show you the fees and returns, and offer a comparison with a better option. My office is just in North Lakes. If you would like to get in touch you can call me on 1300 200 012 or email firstname.lastname@example.org
Q: What is the best Hostplus super option to choose for someone nearly 60?
A: Hi Steven,
If you read The Barefoot Investor, he'll tell you it's the balanced - index option because it's cheap. In fact, he'll recommend that one out of all the super funds available out there. But if you look at the performance of that compared with the regular balanced option, it's underperformed significantly. The reason is almost solely due to the differences in asset allocation between the 2. So although they carry the same 'balanced' tag, they are in fact very different - so you need to, as they would say, "compare the pair".
Cost is very important, so I would agree with the barefoot investor on his desire to achieve low cost. However, asset allocation is even more important.
For someone who is nearly 60, it's easy to say "I need to draw on my money now (or soon) so I need to take a conservative approach to investing because I can't afford to go through a market crash" but, when you close the door to investment risk, you open the door to inflation risk. You likely have a 30 odd year investment and spending time horizon in front of you and inflation over that time will do more damage to your money than a short term market down turn. So, I believe it is important for people around your age to not be too defensive when it comes to their asset allocation.
I like Hostplus because I'm a big fan of NRL and AFL and they spend a lot of money on advertising in those 2 sports - it's great to keep the competitions and teams (I believe Gold Coast Suns and Melbourne Storm) flushed with cash.
Q: There are two of us - with a $280k mortgage, and plenty of equity (no other investments).
A. 63yo with let's say $150k super and "retired"(but no pension). It's so low due to being in and out of a very fickle workforce (and recent (successful) cancer surgery), the life insurance component ate it up - thanks AMP...
B. 53yo (me) with great income and massive super (great employer, permanent role) and obviously some ways to go before retirement (and a $70k windfall pending but goodness knows when - never bank on it).
The question is - would it be beneficial in the long term to withdraw some of A's super (tax free) to reduce the home loan?
With B's income there is plenty of scope to either keep paying the higher mortgage payments for an early payout OR pay lower payments and more into super - need to reduce the pressure on A whose age is and issue getting back into this particular workforce (although we could never prove that). Or possibly gives us more disposable income to enjoy precious life a bit more.
As we age there is always the option of downsizing too - would leave us well in profit. So I am comfie that we will be OK in retirement. But is it a savvy financial decision??
A: Hi Annie,
To answer your first question - should you withdraw to pay off the mortgage? Well, as A is over 60, they can withdrawal the money tax free and put it onto the mortgage - the money then is essentially earning a tax free, risk free rate of return equal to that of the mortgage interest rate. They could also start a pension being over 60 and out of work, and that pension wouldn't pay any tax on earnings. So the question really is - do we want to go the low risk option and earn a rate of return equal to the mortgage, or, do we want to invest that money, take on some investment risk, to try achieve a greater return. There is no right or wrong answer here and will depend on your personal preference, but also your goals and all your other financial resources available to you.
B should really just be salary sacrificing up to the cap, and possibly super splitting those contributions to A. Also, any additional surplus cash flow you have, you have the choice of paying it off the mortgage, or making non concessional contributions to superannuation - the answer to this is in the same vein as the first paragraph. But remember, A has a tax free environment available to them being a pension, where as B only has their superannuation accumulation account where tax is paid at 15%. So other than salary sacrificing to the max, I wouldn't think B would make any additional contributions to their superannuation.
Remember too, that if A isn't earning an income, you can invest in their name and it is also essentially a tax free environment (up to a point).
The answer to all this would probably lie somewhere around a repayment plan of the mortgage by the time B reaches age 60 (or whatever age you feel comfortable with and realistic) - utilise enough cash flow to work towards that goal, then invest any surplus over and above in the lowest tax environment possible.
There are pros and cons to having higher value or lower value principle residence, but it is my opinion that the cheapest principle residence that makes you happy is the best option, and all other available equity can work for you being invested. So downsizing at sometime I think will be a good option for you.
Let me know if I can be of any further assistance.
Q: I am thinking of gifting a friend's newborn with a $1000 investment in Spaceship Voyager's Universe portfolio. It is a new fund with ZERO fees up to $5000. No other hidden fees involved. The annual management fee moves to 0.10% after $5000. I like it because it provides a platform that is well suited to the millennial generation and beyond and since my investment is below $5000, it will be free. There are no in-out/brokerage fees.
I understand there are now high taxes imposed on children's unearned income (? income taxed at 66% once it exceeds $416pa). My question is, will this be imposed on the income from the portfolios dividends? And what kind of share portfolio value would yield more than $416 a year (I know this could be a wide range but am just curious if anyone had a rough idea)?
I have been told insurance bonds are another alternative and that low-cost ETFs are another option. I just wanted a platform that would be more targeted towards the younger generation and love how simple the platform provides a way to learn a little bit about different stocks on a mobile device.
P.S if anyone is interested in trying the platform themselves, if you use this link (www.goo.gl/sBDuCa) we will both get $20 to invest in the portfolio. I think if you sign up through the app without the link like I did, you won't get any free money to invest.
A: Hi PJ,
That is very generous of you gifting your friends child some money.
Firstly, to clear up the misconception about minor tax rates, the 66% tax rate applies for income from $417 - $1,307, then above that is taxed at the top marginal tax rate (45%). The 66% tax rate just makes up for the first $416 tax free, so essentially once it goes over $1,307 you've effectively paid tax at 45% on the full income.
Also, I'll quickly point out that I am NOT a fan of insurance bonds. Although insurance bonds have a flat tax rate of 30% (which is less than most peoples marginal tax rate), what is often ignored is that internally within the bond, capital gains are taxed at 30% WITHOUT the 50% CGT discount that you get when you invest personally. On top of that, there is always a small additional fee to invest through an insurance bond, and once you factor in those 2 things, it is almost always better investing directly and paying tax at your marginal tax rate (see my blog on is here https://glennsfinancialeducation.blogspot.com/2015/10/what-are-tax-benefits-of-insurance.html )
With regards to the spaceship investment, I must meet the person who is running that fund with all the costs that would go along with it, charging no fees, and also giving away $20 to people when they refer others. How generous of them. Even for amounts above $5k, where the fee is .10%, that is less than what Vanguard charge on their low cost index fund with the huge economies of scale they have. Look, I don't understand fully what is going on there, but it doesn't add up to me and when something doesn't make 100% sense, I stay away. I'm not suggesting it's shonky or anything like that, just I doubt it is as good as they make it out to be.
Out of all the suggestions there, my preference would be the ETF. Purchase a Vanguard ETF (maybe one of their diversified funds) and just let it be. Sometimes these funds might turnover a little bit within the fund an distribute a larger amount than just income - so if you were to have a year where it distributed 8%, you could still have $5,000 invested before exceeding the minor $416 tax free threshold. It would take sometime for $1,000 to turn into $5,000 - or, depending on your situation, you might just buy it in your name, with the view to sell and give them the cash in 20 years.
Q: Hi I am 68 and retired. My accountant has suggested I put all the money from my superannuation account into an income stream as the profits are now being taxed at 15%. However I must withdraw 5% every year. At present I don’t need this money Wouldnt I be better off to leave it in the accumulation account where it is earning a reasonable amount? If I withdraw it I will have to pay more than 15% on any earnings. Or should I just travel more?
A: Hi Susan,
Your accountant is right. Leaving it in accumulation is just unnecessarily giving money to the ATO.
Even if you don't need it, the extra amount you don't need, can be saved/invested outside superannuation.
The caveat to this is that if you has significant assets outside superannuation where you might be forced into a taxable position now or some point in the future, you might actually be better to keep the money in accumulation phase paying the 15% on earnings as you won't be able to make the decision later to put the money back into super. In which case, you might start a pension with some of your superannuation, leaving the balance in accumulation.
But remember, you can have a fairly significant amount of money invested outside superannuation before you start paying tax on the earnings.
Or, if you want to travel more, and it fits in with your budgeted retirement income plans, then why not?
Q: I have a property valued at $450k, with a $158k interest only mortgage at 3.4% and $158k in an offset a/c. Also $100k sitting in a low interest a/c , i get approx $75 p/mth interest.... i have $30k in super, im currently not working....
Im a widow, and 48yrs.... not recieving any benefits, and no debts, aside from the mortgage.... im hoping to go back to work next year.
My question is with what i have whats the best way to secure my retirement?
Use all my $$ and get a investment property? Put a lump sum onto my super? Wait till i start working again?
A: Hi Deanne,
There are a million options and things to consider when deciding what you should do from here and a lot of them will hinge on what you are looking to achieve in the short medium and long term, as well as your employment and likely living expenses.
I wouldn't be making any big investment decisions around contributing to superannuation or purchasing a property, until you have secured employment and know what the future will look like.
In the short term, you might be able to find a higher interest rate option for your cash at bank (proving you can maintain access to it), because $75/month on $100k works out to less than 1%.
I have a mix of direct shares and managed funds in my super. The return for last year was 15% which was good, but our financial advisers has shared some concerns about the market and the potential for volatility. They’ve made a suggestion to consider a cash out strategy into a diversified portfolio of managed funds. The return may not be as high but there’s less risk. Is this considered a good strategy at this point of time?
A: Hi James,
It is notoriously difficult to be able to time when to invest and when to cash out of the market, to the point that I don't believe anyone can do it reliably.
The problem with changing investment strategy based on what you think markets might to is 2 fold. 1 is you'll inevitably get it wrong and 'miss out' on returns and the 2nd is that the ongoing costs (taxation and transaction costs) will end up impacting your long term returns.
I think you should have an appropriate asset allocation based on your tolerance to investment risks and your goals and objectives, then leave it as is and spend your efforts on things you can control such as keeping costs and taxes low, managing cash flow, investing surplus cash flow etc etc.
Q: Me = separated from ex for 2 years ( but not divorced )
We have our marital home in Brisbane ( Wakerley 4154 ) sitting empty for sale since Feb 1 . We had one offer for 710 K and all other offers under 700 K .
My ex refused the offer for 710 K insisting that it is worth 725 + K and more like 745 K .
No more offers coming in .
She is offering to drop the price if I give her 60/40 split or if I change from current real estate to purple bricks who offer less commission which I don’t agree to either .
In the mean while we are both paying $1200 each per month on a dead mortgage and other associated costs Eg rates .
How do I force a sale for market price just to get closure ?
A: Hi Brent,
Sorry to hear the difficult situation you are in and as Brendan said, common sense often goes out the window in these situations.
An assets value is what someone is willing to pay and the market is telling you both that it's not worth $725k+. Not only are you not getting closure, but also risking the next offer might be $690k then $680k....
I've found the best solution is the 2 of you having mediation with a lawyer and also for you both discuss things with a financial adviser as your future financial success is probably going to be dependent on many things other than squeezing the last $5k or $10k from a property settlement.
I work with a family lawyer near me (at North Lakes) who I can put you in touch with if you'd like. You can email me at email@example.com
Hope it all goes well for you.
Q: Hi, I am 53 and recently divorced and under financial pressure owing $30k on credit cards. Current superannuation is around $220,000 and would like to ask if I can apply for financial hardship and use some of my super to pay off the cards?
A: Hi Colin,
You need to be on government income support payments for at least 26 weeks to meet the first condition of withdrawing under severe financial hardship which doesn't sounds like the case.
The other option would be under compassionate grounds and there are a few things there but one could be needing to make a payment on a loan that would prevent you from losing your house.
Have a read https://www.ato.gov.au/Individuals/Super/Accessing-your-super/Early-access-to-your-super/
But, it could well be that you need to tighten the belt right up for a few months to get on top of things.
My husband and I have just been advised by centrelink that we are not entitled to receive the aged pension because we have too much assets in the form of money, over the $290,000 allowed savings sum. My question is when we live off our savings and deplete it to the allowed savings mount or less, will we then be entitled to receive the full aged pension?
A: HI Vanessa,
This doesn't sound correct. If you are a couple that own your own home, you can have assets of $387,500 before the age pension starts reducing and up to $844,000 to get a part age pension.
There might be other factors at play here such as the money is deemed to earn an income which pushes you over the income threshold, but on that amount of money, you would have to have other assessable income.
If you want to shoot me an email on firstname.lastname@example.org or call 1300 200 012, I get get your full income and assets and do a quick calculation for you to go back to Centrelink with.
To answer your question though, yes, if you are depleting your assets, you can always go back to centrelink to be reassessed. You need to have spent the money though, not given it away as there is fairly strict limits to how much you can give away (as Brendan has mentioned) under the gifting rules.
I am currently paid $243,000 per annum and I am expecting an offer of redundancy in the coming weeks. I am unsure of what my tax position will be if I accept the offer. I have worked for 12 years in my current employment.
My employer provides a calculator to work out what the redundancy payment will be. However, they have told me that any offer of redundancy is not finalised until the day the offer is made. The calculator tells me that I should expect the following:
Notice Period Entitlement: $29,600
Severance Payment: $158,500
Annual Leave Entitlement: $15,000
LSL Entitlement: $41,500
Estimated Gross Payment: $244,600
Will I be paying full tax on this payment? Someone mentioned to me that I will pay concessional tax – what does that mean?
A: Hi Andrew,
An accountant might be of more help to you, but it is my understanding that on genuine redundancy, the annual leave and LSL will be taxed at 32% (incl. medicare).
The Notice period entitlement and severance payment will form part of your ETP where $71,091 will be the tax free component (assuming you have 12 completed years of service and it is made this financial year). With indexation, I think it'll be slightly more if next FY and on the flip side will be slightly less if you only have 11 completed years of service.
The amount above that (up to $200,000) which is $117,009 is taxed at 32%.
So, all up, I calculate $55,523 of tax on the redundancy payment. So a net payment of $189,077.
But I'm sure there's an accountant here that will be able to clarify this.
Please get in touch if you have any other questions.
Q: Does someone (not working) need to lodge a tax return?
Circumstances: Over 65 and retired. Approx. $10,000 of investment income (including franking credits) plus an additional $10,000 of assessable capital gains (after 50% discount).
So, with SAPTO and LITO, they won't have to pay any tax. But, their total income is over the $18,200 tax free threshold.
On the ATO website on the 'do you need to do a tax return' tool, one of the things says "Does dividends and distributions exceed $18,200"? and if you pick yes, then it says you do need to do a tax return. Dividends/distributions haven't exceeded $18,200 but they've had a capital gain that has resulted in taxable income being over $18,200.
So, do they need to lodge a return or can they just submit a franking credit refund form for their franking credits?
We put an offer on a property today in Glenwood, in writing to the agent. The agent rang straight away and said the offer wasn’t high enough and we asked if that was the answer from the owner and the agent said he wouldn’t bother the owner. Do we have any rights to make sure the owner gets to see our offer?
A: Hi Patricia,
I would have a quick read of this. There's a few points at the bottom of what the agent must do
Q: What is the one thing, your major priority, you would do to help ease housing affordability in Australia?
A: Let market forces take their course. If the next generation can't afford a house, then who will buy them? It's impossible for house prices to continue to grow faster than wages. You can't get to a point in 100 years where an average house is (in today's dollars) $5,000,000 when the average wage is $70,000.
Sometimes house prices stretch one way or the other (cheap relative to wages or expensive relative to wages) but it must eventually return to the mean.
This idea that YOU MUST GET IN NOW BECAUSE THEY'LL ONLY GET MORE UNAFFORDABLE is ludicrous. It might take 5 years, it might take 10 or it might take 20 to revert to the mean. In the meantime, do what James has suggested above.
Q: I am 52 still working can use my part superannuation to pay down my mortgage ?
A: Hi Colin,
No, you can't.
Once you reach your preservation age you'll be able to start a transition to retirement pension while you are still working and you can draw some money out to pay off your mortgage (or for any reason really). For you that will be age 60. For a transition to retirement pension you can draw up to 10% of your superannuation balance each year.
In the meantime, you might be best to actually salary sacrifice more to super (provided you keep under your concessional contributions caps) and then draw it back out when you reach 60. This is because when you salary sacrifice to super, you'll be paying much less income tax, meaning more money in your overall wealth, then if there is any mortgage remaining when you reach 60, draw it out of super (tax free) and eliminate the mortgage.
If you want to know more, don't hesitate to get in touch.
All the best,
Q: What do people recommend as a starting point to set up a SMSF... I understand there is a fair bit of work involved so would $200,000 be worth it?
A: Hi Phillip,
I think there is no amount of money in super that suggests 'it's now a good idea to start a SMSF'.
I've had clients come to me with a SMSF with $1M, paying fairly large accounting/audit fees, plus then had the money invested in an investment product paying administration fees and also investment management fees and financial advice fees. Lot's of snouts in the trough where he could have been in a low cost retail superannuation fund and achieving the same result (well actually, achieving a much better result).
A lot of the time, SMSF's end up investing in the same thing you could invest in through a normal superannuation fund, but the total cost is more. And another bulk of the time is people setting one up to borrow and purchase a property. Again, huge costs - and 99 out of 100 times, doesn't produce an outcome better than a simple low cost diversified fund and in fact, many times a lot worse.
Not to mention the ongoing burden to you for managing your SMSF and also the handcuff you'll have to it (not easy to get out of it) - and the service providers who are providing the ongoing service. And in regards to estate planning - in a lot of cases they are a massive pain in the a** for the executor/beneficiary, particularly when it is the person in the relationship who didn't really manage the money who is left with it.
Q: Hi, we took some bad advice a number of years ago which affected our super. We have a business that is going well and we pay ourselves quite well ($125,000 each) and we own our own home. Given the hit to our super should we look to reduce our salaries and put the difference into our super. We are in our mid 50’s and would like to know the tax implications of this strategy?
A: Hi Bec,
As usual, there is lots of things to consider when talking about something like this. But generally speaking, someone of your age, good incomes and quite financially secure outside superannuation, should be looking to maximise your contributions to superannuation to minimise your income tax via salary sacrifice/tax deductible contributions to super.
You may even also look to make non concessional contributions to superannuation (after tax contributions) because at your stage in life, your savings/investment goal might be purely focused on retirement and superannuation will be your lowest tax environment to invest in.
Of course you need to observe your contribution caps and also be mindful of superannuation preservation age and the risk that preservation age may increase further, and decide if this lines up with your goals.
If you would like to discuss further, don't hesitate to contact me on email@example.com or 1300 200 012.
Q: Hi, if I buy a property through my SMSF can I live in the property and are there any tax implications if I did?
A: Hi Tamara,
No you can't. That breaches the sole purpose test.
Q: Hi..my new partner and I have discussed getting married and we have 5 kids between us. Our previous partners have already remarried and one has a new baby. Is it possible to set up life or disability insurance where only my new partner and I or the kids can access the funds should anything happen?
A: Hi Jill,
Situations like this can be very complicated and messy and I would very much encourage you to speak to a good estate planning lawyer to ensure not only your new spouse is looked after but so is your children if anything were to happen.
To answer your question, yes, you can. A stand alone life insurance policy can have a nominated beneficiary or, if held inside superannuation, you can have someone as the binding death nomination. This has the funds paid directly to the person, without it being distributed through your estate. With any money in an estate, it can be contested.
This should happen regardless of if you get married to your new partner. Just because you aren't married, doesn't prevent someone contesting your estate. They could say easily say that you are in a genuine defacto relationship and they were dependent on you.
I'm sure there are some good estate planning lawyers on here that might be able to help you further.
Q: My wife and I are quite risk adverse when it comes to investing. We are about to receive a sizeable inheritance of about $700,000 and want to ask if we should buy an investment property or put the money into super as we’re in our early 50’s and both still working?
A: Hi Rick,
It is impossible to say what you should do based on so little information about you and your future goals and objectives. By putting the money into superannuation, you will be able to have that money invested at a lower tax rate than your personal tax rate - so that's the big advantage. The downside it is locked away until you meet preservation age and retire, or reach 65 - but that might not be a problem for you. You will need to make sure you don't exceed your caps for non concessional contributions ($100k per annum but you can bring forward the following 2 years so a maximum of $300k). If you are not already salary sacrificing to your cap, then you might like to contribute some of the money as a tax deductible contribution as well.
Once you know the answer of what entity you are going to invest in (your name or in superannuation) then the question comes down to what investments should I invest in. Shares, property, bonds, cash etc. And the answer is probably going to be a diversified portfolio of all the asset classes, whilst keeping your costs as low as possible.
You might also take the opportunity to review your existing superannuation - particularly if you do contribute this money to super as you would now have a sizable balance and can potentially source a lower cost fund.
I would suggest you do speak with a financial planner to help you with all these decisions. If you would like to get in touch, I can be reached on 1300 200 012 or firstname.lastname@example.org
Q: I have stable employment and earn $220,000 a year. Unfortunately, I made a poor decision to get involved in one of those investment schemes where you get tax deductions up front.
The tax department has since closed down this scheme and I now have to pay $180,000 to the ATO. I have 2 properties but there isn’t enough equity to refinance and pay the ATO.
I don’t want to declare myself bankrupt and would like to know what other options are available?
A: Hi Marcus,
There is a great lesson here which you've learnt the hard way.
To answer your question, it's really hard to talk generally, but when you say refinance, are you meaning up to 80% LVR? In which case, selling 1 or both of the properties to access all the equity might be a good option.
Then, ask the ATO for a payment plan. With your income, you should be able to live very modestly and repay it very quickly (especially if the property sales can go a fair way to extinguish that debt).
Q: Is it possible to minimise tax when you receive a TPD payment? I’m 53 and expecting about $300,000 – do I put into super and will that stop me from being able to access fund when I need it?
A: Hi Tim,
Is the policy which is paying the TPD owned by you outside of superannuation?
If so, there shouldn't be any tax payable on the payment. It will just be any tax on earnings from here - which might not be an issue, it depends on your other assets and income.
If tax is an issue, you could contribute it to superannuation. If you have met the TPD definition for your insurance policy, you are likely to meet the TPD definition under the SiS act to have access to your superannuation - but not necessarily so make sure you have that checked off before contributing it to super.
The other thing to consider would be Centrelink. If you are able to claim disability support pension, there may be benefits to contributing it to superannuation so that it isn't assessed by centrelink in determining your eligibility.
Q: My wife and I have our own separate superannuation. If we set up an SMSF can our individual super be rolled into the one SMSF so we can buy 2 or 3 investment properties?
A: Hi Kerry,
Yes, a SMSF can pool up to 4 members benefits and then use them collectively for investment purposes. Quite commonly though it is a husband and wife with their benefits together in a SMSF.
Q: A friend suggested I invest my cash savings into my own SMSF to help with the purchase of an investment property? Is this wise and how can I get my cash back?
A: Hi Lucia,
There are a million questions to determine if this is even a remotely sensible idea.
I would hazard a guess and say it's probably not and best to not get financial advice off friends.
Q: If I purchased an investment property as my first home can I still get the first home buyers grant?
A: Hi Jade,
No. You can't. You need to live in it as your principle residence first.
I would also encourage looking at using the new first home super saver scheme to boost your deposit. Get in touch with me email@example.com or 1300200012 if you want any details or help on it. I'm helping heaps of first home buyers maximise the scheme at the moment.
Q: Listening to Ben Fordham on 2GB yesterday about issues parents are having with their children and the NDIS got me thinking about insurance options for my children. I’m not talking about the families private health insurance but other insurances like disability or trauma. Are they within the blanket policies of parents, what options are available?
A: Hi Margaret,
There is child trauma insurance that will pay a lump sum in the event that your child suffers one of the listed critical illness conditions. However, this has an entry age of 2 and children that have a disability from birth, won't be eligible for this.
OneCare has a additional benefit to a woman's trauma policy called baby care, this is an optional extra that costs more $, but will pay for a number of pregnancy related issues and in the event the child is born with a disability according to the definitions in the policy.
I hope that helps.
Q: I’ve recently been medically retired at 52 years of age and due to illness likely to be successful in TPD claim through my industry super and therefore also gain access to my superannuation. Wondering what is the tax rate on super componnent? As I need $ to live thinking investing in property or stock market may be a preferred option to rolling over. I haven’t applied for Centrelink - single and currently surviving on limited but declining savings. Thanks J
A: Hi Jen,
The amount of tax payable will depend on a couple of different factors.
1. is the tax components of your existing superannuation
2. is the tax components of the TPD payout (this is calculated using a formula)
Then, how much you actually withdraw.
I would suggest that you are probably best of not withdrawing all of your super now just because you have access to it, because you may end up paying much more in tax than if you just withdraw what you need until you are 60.
You may also find you are better off rolling over the majority of your existing super balance before your TPD claim is paid, to keep those monies separate as they may end up with different amounts of tax free component and you may be best drawing from one over the other while you are under 55 and 60 years of age.
Also, maintaining in superannuation accumulation may provide better ongoing centrelink payments for you.
I would suggest seeking some advice and doing the calculations and go from there.
If you would like to discuss further, you can contact me at firstname.lastname@example.org or 1300 200 012.
I'm not sure if I should be worried about my investments at the moment, SUPER & INVESTMENT ACCOUNT with what happened last week in the US? Theres been a few thousand wiped from the balance being in INTERNATIONAL SHARES and a few other things.
I've seen articles saying the worse is yet to come .. or is it just the media fear mongering .. should i switch everything to cash or something less risky .. or am i falling into the trap ?
Whats your opinion ?
A: Hi J,
I had a review meeting with a client in December 2016 and he was saying he was really worried at that point about investing in equities (and in particular the US) because Trump had just been elected and there was a lot of media around what this madman might do to markets.
At that time, I explained to him my philosophy that you can't predict or forecast markets, remaining diversified and disciplined is essential and that the media is there to perform 1 job - fill in the empty time between advertisements. Since then, his portfolio (which is a mix of Australian and international shares, property and fixed interest) is up about 13% and switching to cash would have given him maybe 2.5%. This story isn't to say that we're going to get that again, the point is we don't know and can't forecast markets and making irrational changes to portfolios WILL reduce your long term investment success.
I had a new client email me over the weekend saying their portfolio is down from when they invested with me (which was fairly recently so has experienced this recent fall in markets). I told him about my first client who invested in a geared portfolio back in 2007, investing their own money and borrowed money, and regularly invested every month. After the first 15 months or so, markets had an approx. 50% fall, but stayed committed to the plan and continued every month with the disciplined process (I'm so glad my first client was so disciplined and easy to work with). He now has a very profitable and large investment portfolio and in the last 12 months has achieved an approx. 20% return (he has a very aggressive portfolio). It would have been SO easy to throw in the towel in the early stages, but by remaining disciplined,
he has been able to reap the benefits of the investment plan with very successful outcomes.
Making changes to your portfolio trying to forecast markets will impact your long term investment success. You might guess right once or twice (just like I might be able to pick red or black on the roulette table a couple of times in a row) but eventually, you won't guess markets correctly, plus the cost (tax and transaction costs) will reduce your long term returns.
This is not to say your portfolio is right and just leave it, you've haven't given much information about your current portfolio, investment strategy, mix of asset classes and most importantly your current financial position and your long term goals but don't make changes just because markets haven't moved the way you wanted them.
If you would like to have a one on one intro meeting to discuss in more details and I can present my investment philosophy, please email me at email@example.com and I'll schedule an online meeting with you.
Q: I am moving to South Africa, but i have an investment property here im renting out, is there anything i can do to retain as much of my superannuation so that it doesnt dwindle down to nothing while i wait to be retirement age?? will i have to make contributions to a super there as well?
A: Hi Monique,
Your superannuation should continue to grow without you making contributions, if it isn't, something isn't right. If you have significant fees or insurance premiums that are dwindling the balance, then you may want to review that.
Your rental property income will be taxed as a non resident, however you may have deductions (interest on debt and any other expenses), but, if you still have positive cash flow, you may want to look at making tax deductible contributions to superannuation. That will reduce the tax payable by you and also boost your superannuation.
I am unsure of the SA "superannuation" system, but they might have a retirement scheme that you need to contribute to whilst there.
Q: Im 62 and have $3k left on my mortgage on which i pay the minimum and have $20k in advanced payments.
Would it be beneficial to access some of the $20K to put into my super fund?
A: Hi Barbara,
The answer is possibly.
I wouldn't do it as a non concessional contribution. However, if you are working and paying income tax, then you might want to be looking at making concessional/salary sacrifice contributions. If you are unable to fully utilise your concessional contribution cap before the end of the financial year through your cash flow via salary sacrifice, then you may want to look at making a personal tax deductible contribution using those funds available. The amount to do would be either up to you concessional cap ($25k - which includes employer contributions) and/or the point at which you don't get any more tax benefits.
Q: We live in North Western Sydney but both work at Mascot and thinking of renting our place and living in an apartment closer to work for 12 months for a change in lifestyle. When we discussed this with some friends they suggested we should change our home loan to interest only to maximise negative gearing. Is this good advice as when we called the bank they said our interest rate would increase by 0.20%?
A: Hi Kym,
The old way of thinking was if you have tax deductible debt was to pay that on an interest only basis so you aren't reducing your tax deductions, and utilise the extra surplus cash flow to direct to non deductible debt or other investment opportunities.
However, last year APRA imposed more restrictions on banks around interest only and investment loans which generally will make them more expensive than a standard principal and interest loan. So now, whilst it isn't always ideal to pay capital off a tax deductible loan, it generally works out best to pay principal and interest as you will pay less interest.
Obviously paying a lower interest rate is always going to be best, tax deductible or not, the down side is that you are reducing that tax deductible loan with principle payments, where you might be able to direct somewhere more tax effective. And, what are you going to do with surplus cash flow otherwise? If the answer is spend it, then you definitely are better off paying it off the loan, and if you are going to be paying it off the loan anyway (or accumulating it in an offset account), then obviously the lower interest rate is better.
Having said that though, if the loan is say in the name of someone who is on the top marginal tax rate, and the alternative is to invest in the name of someone with a 0% tax rate, then there could be a case for paying the 0.20% higher interest rate to retain interest only, then use that extra cash flow (the principal that you would otherwise be having to pay) to invest in the lower tax rate individual/entity.
If you do go P&I though, and you are going to use the cash flow for something constructive elsewhere (super contributions, paying off some other non deductible debt etc), you might want to ask the bank to go as low as possible on the principal repayment.
It's good to see you getting a second opinion though because often friends advice can often not be the best. People have old money myths that might not actually be right.
I hope all that makes sense.
Q: I am approaching retirement (60 yrs old ) and would like to relocate on retirement. Is it an option to sell my home now (240,000 mortgage, house worth 350,000 ) invest the profit in my super and draw on retirement to purchase a home in the relocation choice ?
A: Hi Greg,
Yes, this is possible but questions like this pose a lot of questions, such as 'how much will your next house cost?' 'will you have enough in your super to purchase a house outright and still provide income for retirement expenses?' 'How long until you buy your next house and retire?' etc etc.
I see you have at Banskia Beach. I am in North Lakes and have clients at Bribie Island. If you would like an initial discussion, please don't hesitate to get in contact. My email address is firstname.lastname@example.org or you can call on 1300 200 012.
Q: I am about to sell a property which will be able to pay off its loan, my current residence loan and one investment property, is it best to keep a mortgage on an investment property to be able to claim the tax or would it be better to have the investment fully paid off and keep the rent as PAYG income?
A: Hi Kaz,
When you pay off a tax deductible investment loan, you are essentially investing that capital in a low risk investment, with the rate of return equal to that of the loan interest rate. Because it is a tax deductible loan, it is essentially a taxable investment (because the interest you are saving would have otherwise been tax deductible).
If the loan interest rate is say 4%, and you could find a term deposit paying 4% (assuming it is invested in the same name as the loan is in), it will give you the exact same outcome.
Questions like this should be answered in 2 parts:
1. do you want/need to take on more investment risk than a low risk return of 4% (I'm using that as the example but whatever the interest rate on the loan is).
2. Is there a lower tax entity that you could invest in? i.e if the investment property and loan is in the name of someone on a high marginal tax rate, can you invest the capital that you would otherwise pay off the loan into a lower tax entity (perhaps a low income spouse or superannuation)
For example, if that loan interest rate is 4% and it is in the name of someone who is earning over $87,000, so they are on the 39% marginal tax rate (incl. medicare levy), the effective net return of paying off that loan is 2.44%, and perhaps the spouse has a very very low income, and on the 0% marginal tax rate, then they could perhaps take on some investment risk and invest in a diversified portfolio of stocks and bonds and because they will like pay no tax on the earnings, the investment only needs to produce a return above 2.44% to be better than paying off the loan - but remember, that takes on more investment risk than simply paying off the loan. If you are still 10 years from retirement (or whatever) and need to still accumulate wealth for your desired retirement lifestyle, then you may very well want to take on that extra risk and take advantage of the tax differences on offer.
Sorry for the complicated reply and the rambling. It's not as simple as saying yes you should or no you shouldn't. There's always personal factors to consider.
If you do decide on the paying down the loan, you might want to do that in the form of putting that money in an offset account so it isn't actually paid down, but gives you the same result. This gives you the flexibility of redrawing that money later and retaining the tax deductibility of that loan.
Q: Hi, my wife and I have committed to paying an additional $300.00 a week off our home loan this year. Are we better to pay $300 every Monday or set up a direct debit for the 1st of each month for $1200?
A: Hi Craig,
$300 a week is more than $1,200 per month, so clearly $300 per week is going to be better.
However, if you were calculating on a like for like (ie. $300/week or $1,300/month), then it is best to have the extra repayment set at the frequency at which you get paid, and for the payment to be made as soon as possible after you get paid.
Ie. if you get paid monthly at the middle of the month, you are best off paying as much as you can as soon after you get paid. Leaving money in your bank account (not paid off the mortgage) for 1, 2, and 3 weeks to be making weekly repayments throughout the month, doesn't make sense. You are best off having that money paid off your mortgage as soon as you get paid.
The general notion of 'always just pay weekly as you end up paying less interest' is wrong. If you are paid weekly, then yes, make the extra repayment weekly (as soon as you are paid each week), but if you are paid monthly, don't leave money sitting there not offsetting the mortgage throughout the month to drip it in on a weekly basis, you are best off paying it into the mortgage as soon as you are paid.
The myth of 'weekly is always best' is because the loan repayment calculations aren't done correctly understanding payments at the start of a period and end of a period and tying that into the frequency in which you are paid. But general common sense should tell you that having the money offsetting the mortgage as soon as you are paid should tell you what's best. It dumbfounds me that so many mortgage brokers don't understand this.
I hope that helps.
Q: I am not a financial planner but I have always believed that being debt free would have to be a prerequisite to retirement.
What are your thoughts on this?
A: Not necessarily, but in general I would agree with this.
Sometimes people carry debt for a short period into retirement as they may sell down assets over a few financial years post retirement and use that to eliminate debt.
Other's, generally more wealthy individuals who have been carrying on businesses throughout their working life, never fully 'retire' and they'll continue to hold debt and invest well past 'normal working age'.
Q: I need to utiilise my superannuation fund to buy a home. I am 59 years old and understand I can somehow apply for a early release. Would there be someone who could guide me?
A: Hi James,
And following on from what James has said, from age 60 withdrawals are tax free from superannuation so if you are able to access your superannuation now, it might be worth still waiting until you are 60. It could save you a lot of $ in tax.
Q: I want to buy some shares for my young kids. If I set-up a trust the income tax on dividends will need to be paid by me (at 35%). Can I get the kids a TFN and buy them in their name so they can benefit from the $18k tax threshold?
A: Hi Jack,
No, you can't. Children under 18 are subject to minor tax rates for unearned income (income from investments) and can only earn a very small amount before paying top marginal tax rates.
You could set up a discretionary family trust and distribute income up to the very low tax free threshold (it's like $416 per annum off the top of my head) to the children, and then the rest to you. However, the running costs of the trust are probably going to be more than the benefit.
A lot of people will probably try tell you that you could/should invest in an insurance bond, but the net returns are similar to that of someone who invests on the top marginal tax rate. I would suggest not using an insurance bond.
For most people, you're probably better off just investing in your name, or if you have a low income spouse, investing in their name and gifting the money to the children in the future.
Q: I have $175,000 in super and due to retire in 8 years. What’s the best way for me to grow my super?
A: Hi Martin,
It all boils down to a pretty simple formula:
Contribute regularly and as much as you can within your cash flow and your contribution caps
Take an appropriate investment allocation that you are willing to accept the risks (risk and return are related, to chase a higher return, you need to accept more risk)
Keep costs low.
Don't fiddle with it - investments are like a bar of soap, the more you touch it the smaller it will get.
All the best,
Q: I am wondering how tax works with deceased estates. In particular taxing super annuation balances and insurance. My Dad died this year and my family and I have been given the option of transferring the money to us directly or to transfer it to the estate, as we haven’t yet sold his house and it’s in trust. We’ve been told that if we transfer the balance of super annuation and insurance we will be charged up to 17% and up to 37% respectively for the money. Just wondering which way we’re better?
A: Hi Sarah,
Taxation of superannuation depends on the tax components of the superannuation and whether the beneficiaries are dependents or non dependents under the SiS act. If you are not dependents, and there is insurance proceeds, then you are likely to pay 17% and 32% (and possibly 0%) on the various components.
Whether it is paid to you directly from the super fund, or via the estate and then to you, won't change how much tax is paid. It is calculated the same and is determined by the final recipient and whether they are dependent or non dependent.
Q: Met with my financial adviser on Tuesday and he tells me my superannuation increased by 7.2% over the past 12 months. I’m a little concerned as I thought the market had performed better than that .... is 7.2% at the lower end?
A: Hi Ben,
I've had some clients achieve a 20% return in the last 12 months and others down as low as 8-9%. It really depends on the client, how much risk they've taken etc.
Having said that, 7.2% is either a very defensive portfolio, or very high fees (or some other problem). If you want a confidential, free, second opinion, please shoot me an email (email@example.com)
Q: I have recently discovered that an original trademarked photo owned and taken by me has been used on an international website for the last 11months without my knowledge. I was not asked for permission at any stage, I was given credit but was never contacted about use, am I entitled to compensation for illegal use of my photo?
Thanks in advance
A: Hi Sean,
I would suggest speaking to Jeanette Jfkins from Onyx Online Law who specialises in this sort of stuff. Based in North Brisbane.
Q: Im about to receive my superannuation early (age 40) along with the tpd insurance payout. Will the taxable component affect centrelink payments ie. Ccr, ccb and ifso should i put some aside for the next tax period to cover overpayment for this financial year so far?
A: Hi Alan,
I'm going to preface this with that I don't know exactly without doing a fair bit of research.
I believe FTB and childcare etc are assessed on adjusted taxable income.
From the centrelink website https://www.humanservices.gov.au/individuals/enablers/adjusted-taxable-income it says that this includes superannuation income streams and lump sums.
Not only that, there could be quite a lot of tax payable on the withdrawal being made.
So, depending on exactly how much there is being withdrawn, and the tax components of your superannuation fund, there could be significant tax and centrelink issues for you.
I would definitely suggest you seek advice before just withdrawing all your super. There could be much better outcomes for you if you take a lessor amount as a withdrawal, and possibly an ongoing income stream.
Q: With regard to the $25,000 celing on super contributions.Are the contributions from the employer counted in the $25,000?
A: Yes. The concessional contribution cap of $25,000 includes employer superannuation guarantee contributions.
Q: About to start a share portfolio and would like to ask about the fundamentals people use as part of their consideration of whether to invest in a particular business?
A: Hi James,
I carry the belief that the market is efficient and an amazing mechanism to incorporate all available information into prices. This means that we cannot look at information about the company and say that stock is too cheap or too expensive, because that information has been processed by the thousands of market participants to determine fair price for the stock (the current price) and it is very very difficult, if not impossible, for an individual to outsmart the market. There is a lot of evidence to support this.
There are a lot of managed funds out there that employ amazingly smart people with hoards of resources at their disposal to be able to look at stocks and purchase some (and visa versa not purchase other stocks) in an effort to outperform the market - these are called active funds. However, the stats on whether they can outperform the market don't look that good. Yes, there funds that outperform the market in a given period, but just like if I asked 1,000 people to toss a coin 100 times and I am looking for people who can toss more heads than tails, I will get some people who do toss more heads than tails, but we know a coin toss is a random chance outcome. The statistics show that the out performance shown by active managers is remarkably similar to the outcomes you would experience from a random chance experiment such as a coin toss. So, if these professionals who's sole job it is to outperform the market, can't produce a positive outcome over and above the market return with any more reliability than a coin toss, then I don't believe individuals stand any great chance.
As Warren Buffett says, most institutional and individual investors would find the best way to own common stock is through a low cost index fund.
There are a lot of people who might say different because of x reason or y reason. But there are also people that believe that they have a strategy for picking horses, numbers at keno, blackjack etc and they might have won in the past which helps confirm their belief, but that doesn't make it true as we know, their is no reliable method for betting.
All the best with your investing,
Q: Hi lm asking about collecting my Super.. Five yes ago l was forced to not b able to work through lymphoma diagnosis and treatment... Atm lm on disability pension and have 60 k in super...lm 57 yo. Do l have to pay 17% tax on this when l want to collect it.??....thanks bohalloran.
A: Hi Bernadette,
It depends on the components.
Tax Free component can be withdrawn tax free.
Taxable - taxed can be withdrawn tax free for those between preservation age and age 60 provided it is within the low rate cap ($195,000). If you exhaust your low rate cap, then you pay 17% tax.
Taxable - untaxed will incur 17% if within the low rate cap and 32% above that.
Unless some of that $60k is insurance proceeds, then I would think that it is either tax free, or taxable - taxed component. And if you've made no other withdrawals from super, then it would be within the low rate cap, making it tax free. But it would be best to check to see if there is any taxable - untaxed component. If there is, it's probably best waiting until after you turn 60 to withdrawal.
My Partner and I (mostly me) have been thinking about starting an SMSF to invest in studio apartments in Kings Cross area.
We have a combined balance of around $120K, we are both late 20's, combined monthly super contributions of around $1,300.00 with the potential to increase that to $1,600.00 PM.
The plan would to live of the rental income in retirement, from what i've said do you think its worth visiting a FP?
A: Hi JT,
I think it's great that you are thinking about your super and trying to plan for retirement at such a young age.
But, I think this is a bad idea for what has been mentioned previously.
Concentrate on keeping your costs low and having an appropriate asset allocation for your long term goals, investment time horizon and willingness to accept market volatility. Making additional contributions via salary sacrifice is a great idea, but the appropriateness of that would also depend on your personal situation.
Q: Is it better to take maternity pay at half or full pay? My work provides 14 weeks full pay or 28 weeks at half pay. I have no concerns over my ability to budget I am just trying to work out which approach will work better financially. Factors to consider.
1. My pay goes straight onto my mortgage which has interest calculated daily
2. Maternity leave begins in December if I take it at full pay it will all be used by the end of the financial yearn half pay will roll into next year.
A: Hi Mary,
Great question. My wife is currently pregnant and will be going on maternity leave in mid January. Her employer also provides 14 weeks full pay, or 28 weeks at half pay - just like your situation. She'll also get the government paid parental leave (double dipping - I don't agree with it, but while it is available I have no moral objection in taking it because if I don't take it, they won't give it back to me in reduced taxes).
Firstly, the sooner you can get the money into your pocket the better, because as you say, it can sit on your mortgage saving you interest.
The big question is can you save tax by spreading out your maternity leave payments over separate financial years, lowering your marginal tax rate.
For you, I can't see any big benefit in doing one over the other as if it is starting in December, 28 weeks will still be virtually fully exhausted by the end of the financial year.
If however you are also going to get the paid parental leave (and then perhaps take some unpaid leave) then you will probably best to try spread that into the new financial year (ie. if you take your employer maternity leave at full pay so it is exhausted around March, then don't take the government paid parental leave until July - just check the rules on how long you can delay it)
My wife is virtually taking the entire 2018 off, so her maternity leave falls neatly over 2 financial years, so we didn't have to do too much jigging around to even out her 2 financial years of income so we didn't pay unnecessary tax on one of those years. She'll be taking her's at full pay, then taking some unpaid time off, then starting the government paid parental leave in July.
Q: Hello. My names Nick. Im.just after a quick answer or your knowledge on my situation. Im single 50yrs old. With $2million in managed funds withing Anz bank. Ive been with them 10yrs now. An average of 8-9% returns. Which included 2007 GFC .
I have no debts. Own my house. Now. If i retire would it be reasonable to assume a 4% SWR yearly. Say $7k monlthy withdrawal. For the next 30-40yrs.... will i still retain my principle ?. Im asking th
A: Hi Nick,
I would be interested to hear what managed funds you've been invested in that have returned 8-9% over the past 10 years?
Q: Hi. I am interested in buying my first investment property here in Australia and I am considering hiring a buyer's agent who charges a fixed fee (13k). Does anyone recommend using one or will I be better off doing everything myself? What's your experience?
A: Yes, I know a buyers agent that delivers great results. I think they are worth the money as many buyers get emotionally caught up in the buying process and end up paying too much/not walking away when they should.
$13k seems pretty expensive though. I thought the one I know charges about $8k for the full service.
As Andrew said, it's best to be very specific with what you are after.
Q: We incurred a loss on a property investment within our smsf and would like to ask if it was possible to transfer the loss into a new smsf or our personal tax?
A: Hi Stephanie,
The short answer is no. If you wind up a SMSF and there is capital losses, they will be lost.
The longer answer would be: Can you retain the existing SMSF, rather than starting a new one? You would be able to retain that entity and transfer the administration of that existing fund, to a new accountant/SMSF administration service if the goal was to just move away from the existing SMSF service. Or bring in other members to that fund, who might be able to use those losses.
The other question would be, is carrying forward the losses going to provide any great value? I typically recommend for my clients a thing called Investor Directed Portfolio Services (IDPS) or 'wrap' accounts for their superannuation. These superannuation funds can hold assets and not realise any Capital Gains and when the client reaches an age in which they can start a pension, can transfer the assets from accumulation to pension phase, without inuring CGT, then once in the pension phase, there is no tax payable. If you are 40, there's a fair chance you might realise some capital gains in the future before reaching pension age, but for those clients 50+, it's very reasonable to think that they will be able to get away without paying any CGT.
I hope that helps.
Q: My mother’s fortnightly pension was around $360 p.f but with the recent changes to the government asset tests it is now $260 p.f. She owns her home and is worried about the lost pension and have to live off the funds in the bank. She has about $400k in the account and we would like to ask if there are other options for someone who is quite conservative to get a better return?
A: Hi Tami,
Yes, the recent changes have meant retirees are getting less age pension and are required to draw upon their capital more.
One of the biggest risks to retirees is inflation and longevity. Overtime, things get more and more expensive and retirees live much longer so it is important to have a diversified portfolio that includes investment in some 'risk' assets that is expected to produce returns over and above inflation over the long term. A retiree even at 70 years old could have 20+ years of investing and inflation in front of them.
Another important thing to remember is that there is no free lunch when it comes to investing. There is no such thing as higher return without higher risk. If you are being sold something that is a higher return without more risk, then run because it doesn't exist. But risk shouldn't be seen as a scary thing. When I talk about increasing investment risk to my clients, their portfolio's are so diversified, it doesn't mean increased risk of losing all your money, it is just the increased risk that you might experience a negative return in any given year. Having a negative return one year every now and then doesn't matter, history has shown time and time again, that you are rewarded for taking risk over the long term. I would much prefer to have 5 years of a 10% return, then 1 year of -10% return, than having just 6 straight years of a 2% return.
One option that you may want to consider is a split. Something along the lines of 50% of the capital to be invested in an annuity. An annuity can provide a guaranteed lifetime, index adjusted income, as well as Centrelink benefits as the asset assessment reduces overtime. which would give her a guaranteed income of the annuity as well as increased age pension for life. The downside to the annuity is that you are effectively locking in your money for a long time at a very low rate of return (3-4%) which I why you could consider having the other have invested in a diversified portfolio including growth assets.
A lot of this would depend on your mothers age and health etc, so it is probably very important you seek advice. Having all her money in cash at the bank though, particularly if she is relatively young and healthy, is probably not a great plan.
Q: I’m due to inherit $300k in superannuation death benefits from my brother who passed away. I’m wanting to invest a portion of that into my superannuation fund. I’m a sole parent working full time. What are the tax implications on this, how much can I invest per year? Also, will this inheritance be classed as income for Family Tax Benefit/Centrelink reasons?
A: Hi Melanie,
Unless you are classified as a dependent of your brothers, you will be required to pay tax on the taxable component which is 15% or 30% plus medicare levy, depending on the exact type of taxable component (taxed or untaxed). If the money is proceeds of an insurance payment, then 30% will be payable on a portion of that money.
That payment won't be classed as income for centrelink, so there is no issues in that respect, but going forward, income (deemed income) and asset assessment will apply which may affect Centrelink payments.
If it is contributed to superannuation and you are under age pension age, then it is not assessed by Centrelink, so you would carry on with unchanged Centrelink payments. However, it is important to understand that it is then preserved and you won't be able to access until you reach your preservation age and/or meet a condition of release.
Also, be mindful that you have an annual non concessional contribution cap of $100k, however you are able to bring forward the next 2 years and contribute up to $300k in one go, but that then precludes you from making additional non concessional contributions.
But it may be worth your while contributing this money to superannuation overtime as concessional contributions which would give you some tax advantages (depending on your income). Whilst keeping the money outside super might reduce Centrelink payments, the reduced tax may make it worth while, but you would need to do the calculations etc and you might do say half of it now as a non concessional contribution and the other half as concessional contribution over the next 5-10 years or something like that.
Q: My wife stopped working years ago to care for our autistic son. Her super has really slowed in growth and contributions are only coming from the ones I make once a year. We will likely be on a single income for the foreseeable future so combining our two accounts into one seems to me, the most logical thing to do. I have spoken with our financial adviser and she mentioned a self managed fund, but has spoken of high costs and time involved and we are at a loss as to which way we should go now?
A: Hi Russell,
I would suggest that seeking out a SMSF just to combined funds will not achieve much, if anything increase your costs and end up worse off. After all, a SMSF isn't going to start making your wife extra contributions. You might though want to review your wife's superannuation to make sure it is low cost so that it isn't eroded with fees. Your wife not working and as such not receiving superannuation guarantee and salary sacrifice contributions is going to slow the rate of growth of her superannuation fund, no amount of fiddling will change that. Depending on your exact situation, the best course of action is probably salary sacrificing for you up to your cap, then a $3,000 contribution to your wife's superannuation as a spouse contribution (so you get a tax offset). If you still have surplus income after that, it would depend on other factors but I would probably be looking at investing funds into your wife's name (as she will be on a 0% marginal tax rate) or paying down your mortgage (if you have one).
Q: I have just started my job and have started saving. I would like to invest in the future be it in a term deposit or shares and would like to know how much I should save before it is worthwhile?
A: Hi Ian,
You could get away with commencing a share investment portfolio for as little as about $5,000. I would look at retail managed funds (perhaps something like Vanguard index funds), or exchange traded funds (managed funds that are traded on the stock exchange), this would get you in the market reasonably cheaply with a small balance.
I would however really consider whether that is appropriate for you. If you are looking at a share investment plan, I would like to see an investment time horizon of 5-7 years as an absolute minimum, with regular investing all along the way.
If you are thinking of saving for a house deposit or something else in the short term, then just saving into an online saver is probably best without risking your capital. If you are thinking about a house deposit, consider the governments new first home saver scheme, although it hasn't been legislated yet so in the short term save to an online saver, then after the legislation has been passed, utilise the scheme to reduce your tax.
Reach out if you have any other questions.
Q: The bank just cut our rate from 4.52 to 4.35 and gave us the option of lower payments or keeping the payments the same as we have now. We are comfortable with what we are paying so does it mean paying the loan off earlier?
A: The question is, can you earn an after tax return of more than 4.35% elsewhere with your surplus cash flow, taking into account the mortgage return is a risk free return.
Generally speaking though, even if you are willing to invest elsewhere for a greater return, you are still better off by directing all surplus cash towards your mortgage and reborrowing for investment purposes. This gives you the same result, but better tax efficiency.
But, as a simple answer, I'd say, yes, keep paying the higher repayment or better yet, increase it.
Q: We have a house that is worth approx $800,000 and we have just purchased a property in Queensland for $420,000. We would like to move up there but are unsure whether to rent out our current home or sell it? If we do sell it can we put any surplus funds into our super without it being taxed? We are about to hit our 50's and haven't got much super. We need to know what our options are.
Any advice would be helpful
A: Hi Daryl,
To add to the answer, you can contribute $100k per annum or bring forward an additional 2 years and do a lump sum of $300k as a non concessional contribution to both yours and your spouses' superannuation.
Depending on your tax position, you could also look to fully exhaust your concessional contribution limits ($25k per annum).
However, you may not want to make non concessional contributions to superannuation. If you or your spouse have no taxable income, you are better off investing in your name, rather than superannuation. Superannuation is taxed at 15% and you can earn approx. $20k per annum in your own name without paying tax which could be around the $500k.
There is lots of things to consider regarding what would be the best thing for you, so I would suggest seeking advice or provide further information around your income, assets and liabilities.
Q: Can primary production land in a trust for a child qualify for farm expenditure deductions from the trustees personal income tax ?
A: Hi Jude,
No. Trusts can't distribute losses to beneficiaries or trustees.
Q: I am 60yrs old and working full time.
If I invest $50k into my super am I able to access it before my planned retirement at 65?
A: Hi Bruce,
As you are over 60 and currently working all you would need to do is cease employment with an employer. So if you are currently just working full time for 1 employer, you would need to cease employment with that employer (change jobs or retire).
If you are making a lump sum contribution to superannuation, I would suggest fully utilising your concessional contribution cap ($25k per annum) before making non concessional contributions.
Q: Is a Quantity Surveyors Report required for a positive geared investment home ?
Was looking to get one done but now im confused as I've been told that i may not need one as the home is positve geared, will it be beneficial to get one done anyway?
A: Hi Oz,
I agree with Suresh - be careful with what you are told. For many people getting a depreciation schedule is a wise move as they can claim the depreciation against their income and reduce their income tax. Whilst this does increase the capital gain in the future, with the 50% CGT discount and the possibility in realising that gain in the future when you have a lower taxable income, it is usually best to claim the depreciation.
BUT - not for everyone and that's why you shouldn't throw a blanket rule over everyone. You might not have any taxable income at the moment so you aren't paying any tax on the rental income, so claiming depreciation isn't going to give you any benefit now but could potentially increase the amount of capital gains tax you pay in the future.
So your question can't be answered accurately without further information about your situation but it is likely that you will want to get a depreciation schedule and claim the depreciation.
Q: Should I put some extra cash that I have received into my super or pay off my mortgage?
A: Hi Simon,
This is a common question. It is not a simple question to answer as there is pros and cons to both and they differ depending on your age and your income and also to some extend your willingness to take on some investment risk.
If you are working and paying income tax, then your best type of contribution to superannuation is probably a concessional contribution (like salary sacrifice contributions) but the rules have changed this year and you can also just contribute a lump sum from your bank account and claim a tax deduction. But you need to be mindful that there is a cap of $25,000 of concessional contributions you can make per year and your employer contributions and any salary sacrifice contributions are also included in this.
Unless you are quite young, your best option would probably be making concessional contributions.
If you have additional funds over and above this, the question gets a lot harder. Money on your mortgage earns a guaranteed rate of return, essentially tax free, equal to your mortgage interest rate - whilst generally that is a good option, in times of such low interest rates, you may look to invest elsewhere and in your case might be to contribute to superannuation as a non concessional contribution. This would be to take on some investment risk in order to achieve a greater return (after fees and taxes) of your mortgage interest rate.
Keep in mind that the tax rate in superannuation is 15% so sometimes if you have a non working spouse, it is better to invest in their name at 0% tax than in superannuation.
Finally, if you feel like you do want to invest rather than reduce your debt, another option could be to use the funds to pay down your home loan, then reborrow the same amount as an investment loan and invest that. This would give you the same overall debt and investment position that you would have if you just contributed to super, but you would have changed some of your debt from non deductible debt to deductible debt and could give you an overall better tax position than if you just contributed to superannuation.
Like everything, there is no simple answer unfortunately, but hopefully that helps you out somewhat.
Q: I am looking at kicking off an SMSF but have always been wary of the costs associated. I have come across E Super Fund who are an online company who provide the structure and regulatory requirements including auditing for about $800 per year. Sounds like a great deal, but I'm always worried about deals that sound too good to be true.
Has anyone used them or does anyone know enough about them to be able to give any insight or feedback?
I want to ensure I've done my due diligence before moving.
A: Hi John,
I have a client who manages their SMSF through esuperfund. They had that prior to coming to me for investment and strategy advice. I can't really say much about them because I don't have any direct dealings with them, but the returns are done each year without too much of a problem.
You do need to do some work in getting all the data to them and also be aware that the work is done overseas. Also, they are a straight administration provider. They won't be there to help you with your trustee requirements and provide advice on what you need to be doing to remain compliant.
Q: I have just been made redundant. I am 50. My husband gets the aged pension and I receive the blind pension. We have been living off that for that past year while I was off on medical leave. I have received a payout of almost $100K from my employer. My super fund says because I was made redundant I can receive a pension for life from my super. I can also take a lump sum or just leave it until later. Not sure how this will effect taxes or my husband's pension? Any advice is appreciated.
A: Hi Lynda,
There is a number of things to consider here and I would strongly suggest you seek advice. I would suggest advice from your superannuation fund would not be adequate for you at this stage.
My understanding is that your blind pension is not subject to the income and assets test, however your husbands age pension is. Therefore, you taking a pension now, may have an effect on your husbands age pension. Being only 50, and eligible for a pension (as your super fund has said), I'm guessing you were a government employee with a pss or css superannuation and there is options available to about how you take your pension. Or perhaps your superannuation is referring to take a pension under early release due to disability, which would have nothing to do with redundancy.
Also, an important part of what you do, is about ensuring you can achieve your goals. If you were to delay taking a pension from your superannuation, will you have enough income to meet your requirements? What do you want to be doing in your retirement?
Anyway, I would strongly urge you to seek quality advice that can look at all the details and your situation and provide you with appropriate advice.
Q: If you have super in the pension phase, and the balance is, say $1.55m, but the price of shares goes up, or dividends are received, and the value goes above $1.6m, have you breached your transfer balance cap?
A: HI Sam,
Investment earnings both positive or negative do not affect your balance transfer account. If for example you start a pension with $1.55M as you said, your balance transfer account will be $1.55M, future investment earnings do not affect this, only future commutations from the pension. So, if the balance grows above $1.6M, this will not breach the balance transfer cap.