Ask Noel
A recent article of yours referred to a reader who had taken money out of their super fund to lend to their daughter for a bridging loan to help buy a house. My understanding is that this isn't allowed.
A recent article of yours referred to a reader who had taken money out of their super fund to lend to their daughter for a bridging loan to help buy a house. My understanding is that this isn't allowed.Unless your super is unrestricted non-preserved, you cannot get access to it until you reach your preservation age, which is at least 55, and satisfy the necessary conditions of release. However, once you do gain access to it there are no restrictions on what you can use it for. Therefore it is quite in order for a person to use part of their super to help a family member. Of course, if they are on Centrelink benefits the gift or loan would be treated as a deprived asset and the benefits would be reduced.I'm in the 40 per cent tax bracket. I have a $500,000 investment property with a $195,000 mortgage on it. The tenant is paying $1600 a month. I'm about to reach the stage where the property is positively geared and will be paying tax on the profit at 40 per cent. I have five years to go before retirement. What is the most effective way to manage these finances over the next five years?Leave the loan on an interest-only basis and at the same time create a sinking fund to pay out the debt by salary sacrificing as much as you can to super. If you are more than 50, you can sacrifice up to $100,000 into super, which will reduce your taxable income and ensure the rents are not being taxed at 40 per cent any more. There is no point in reducing your salary below $34,000, where the 15 per cent bracket cuts out, as salary-sacrifice contributions lose a 15 per cent entry tax. Withdrawals from super are tax free once you reach 60, so this strategy will allow you to maximise your tax breaks while building wealth in a tax-effective way.I recently retired on a Department of Veterans Affairs pension. I have three term deposits in local banks totalling $100,000 and earning about 8.5 per cent. I would like this investment to return $20,000 a year - how can I do this?Remember the higher the return, the higher the risk. You would need to earn 20 per cent a year for a deposit of $100,000 to produce $20,000 a year and it's not possible to achieve this with safety. You are better off to accept the safe return from the bank and sleep well at night.My partner and I reduced our home loan to about $10,000 and bought another property to live in, redrawing from the previous property's loan. We then decided to rent out the first property. I have been told I cannot claim a tax deduction on the interest for the full balance of the redrawn loan and that only the $10,000 balance on the original home loan is eligible for a tax deduction. Am I better off selling the property? I will lose all my equity if I sell, since the market is 10 per cent less than when I bought.Your advice is correct. The redrawn loan was used for a private purpose, to buy your own residence, and so the interest is not deductible. Only you can decide whether the original property has strong growth potential but when thinking about selling, you will need to decide if any future tax savings will be more than the capital loss you will suffer on the sale. Furthermore, once you rent the property it will be harder to sell because it is unlikely to be kept as well as it was when you were living in it. Tenants also make it harder for the agent to conduct inspections for potential buyers.This article is general in nature. Readers should always seek further advice before making financial decisions.To ask a question write to Ask Noel, Money, GPO Box 2571, Qld 4000, or visit moneymanager.smh.com.au/sitewide /askanexpert.html.
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