I have been on the disability pension for 15 years. I am 45 and have $11,000 in the bank but would like to keep a bit in there for a cheap car and maybe a holiday. I can only save $100 a fortnight so wondered if I could buy a few shares every fortnight, or even government bonds. Can you tell me if my situation is viable and if not, can you offer advice on how to proceed?
Congratulations on your money-management skills and your attitude to money. I think the simplest strategy for you is to keep accumulating money in the bank to ensure you always have sufficient to fall back on in need. You could then invest any surplus funds in a quality managed fund that invests in shares. You could start with just $2000 and add to this when funds are available.
We intend to sell our investment property shortly. What would be the base value of the property taking into account selling expenses, a bank loan of $270,000 and renovation expenses estimated at $20,000 to determine capital gains tax?
This is something you will need to calculate yourself hopefully you have kept the records to do so. The base cost will include the purchase price and purchase costs and all items of expenditure, such as renovations since you acquired the property that were not written off each year in the profit and loss account. Obviously, this would not include items such as interest rates and maintenance. Your accountant is the appropriate person to guide you.
My husband and I are 57 and 52. I have $260,000 and my husband has $380,000 in super, invested in the high-growth option, 100 per cent shares. We recently instructed our super fund to allocate future contributions to the conservative option, which is mainly cash. We now have about $10,000 each in this option. I have $100,000 of equity in an investment property and about $230,000 in a defined-benefit super scheme, to which I have been contributing for seven years. We plan to work for another three years full time then two to three years part time, paying the maximum concessional contributions into super. I will continue to contribute 10 per cent of my gross salary to my defined-benefit super. We have considered a self-managed super fund but as we would need to rely heavily on investment and compliance advice, we would only do so if we would be better off. Is it a good strategy to leave our combined $640,000 in our present fund's growth option and allocate our future contributions to the conservative option?
You can eliminate most of the burden of administration and compliance that goes with a self-managed superannuation fund if you engage a firm of full-time super-fund administrators. However, it is the effectiveness of the investment of the assets held by the fund that will determine its performance. If you are not confident in choosing your own shares and property, you are probably better off leaving the decisions to full-time fund managers.
My husband is 70 and I am 65. We are self-funded retirees with a small Centrelink pension. We have some shares, bought last year, which appear to be doing well. I am concerned that when we sell them, we may have a large tax debt. If we were to start a self-managed superannuation fund, could we then sell them and the other shares into the SMSF, and thus have a much smaller tax debt? We are aware that this could also create tax problems in the short term. Should we sell them and then repurchase immediately, thus reducing tax implications when we sell the shares in future?
If your super fund buys the shares from you, you will be liable for capital gains tax. In some cases, it is possible to reduce the amount of CGT by making a tax-deductible contribution to super, but this may not be possible because of your age. Once you reach 65, you cannot contribute to super unless you pass the work test, which involves working 40 hours in 30 consecutive days. The benefit of shares is you can sell them in small parcels so the simplest solution may be to minimise drawing money from your super funds and run down your cash holdings outside the funds. This will mean minimal CGT if you need this to sell any of the shares.
Advice is general readers should seek their own professional advice.
Contact noel.whittaker@whittaker macnaught.com.au. Follow him on Twitter: @noelwhittaker. Questions to: Ask Noel, Money, GPO Box 2571, Qld, 4000, or see moneymanager.com.au /ask-an-expert.
I am 22 years old and recently graduated from university. My parents are going to start charging me rent to live at home. I have about $90,000 and would be happy to invest $80,000. I am currently earning $60,000 a year. Should I purchase my own place rather than throwing money away on rent? I live in Wollongong and there are two-bedroom units available for about $230,000 and modest three-bedroom houses for $400,000.
Remember that rent is not dead money, it is the price of shelter, so you will need to be sure in your own mind that any capital gains you will make if you buy a property outweigh the extra costs you will incur in expenses such as interest, rates and maintenance. You do have a rather big deposit and appear to be a good money manager so buying a house could be a good option for you if you have the skills to find an undervalued property in a good location.
Frequently Asked Questions about this Article…
Can I invest if I'm on the disability pension and can only save $100 a fortnight?
Yes — but keep an emergency buffer in the bank first. The article recommends continuing to accumulate cash so you always have funds to fall back on, then investing any surplus in a quality managed fund rather than risking your safety net. You can start a managed fund with about $2,000 and add regularly; buying small parcels of shares or considering conservative fixed-income options are possible once your buffer is secure.
Should I buy government bonds or shares fortnightly as a small regular investor?
Both are options, but the article suggests the simplest approach for small regular savers is to keep a cash buffer and invest surplus into a quality managed fund that spreads risk across shares and other assets. Managed funds allow you to start with modest sums and benefit from professional management; direct bonds or shares are possible but require thinking about liquidity, fees and your comfort with market swings.
What counts as the base cost of an investment property when working out capital gains tax?
The base cost includes the purchase price, purchase costs and any expenditure such as renovations since acquisition that were not written off in your profit and loss account. It typically does not include items such as interest costs or routine maintenance. Selling expenses and accurate records are important, and your accountant is the appropriate person to guide the detailed calculation.
Is it sensible to leave our combined super in a growth option and switch future contributions to a conservative option?
That can be a reasonable strategy if you want growth on existing balances while reducing risk for new contributions. The article cautions that if you aren’t confident selecting shares or property yourself, you’re often better off leaving investment decisions to full‑time fund managers. If you do consider a self‑managed fund, remember administration can be outsourced but investment effectiveness will determine performance.
Can starting a self‑managed super fund (SMSF) help reduce capital gains tax when selling shares?
Not automatically. If your super fund buys shares from you, that transaction can trigger capital gains tax. In some cases making a tax‑deductible contribution to super can reduce CGT, but age limits and the work test may prevent this. The article suggests a simpler approach for retirees may be to minimise withdrawals from super and run down cash holdings outside super so you can sell shares in small parcels to manage tax timing.
Will selling shares and immediately repurchasing them avoid tax problems when moving assets into an SMSF?
No guarantee. The article warns that selling and immediately repurchasing shares or moving them into an SMSF can create short‑term tax problems, and if your super fund buys the shares from you you will be liable for capital gains tax. Because outcomes depend on age, contribution rules and timing, seek professional advice before attempting such strategies.
Can I avoid the SMSF administration and compliance burden if I want a self‑managed fund?
Yes — you can engage a firm of full‑time super‑fund administrators to eliminate much of the administrative and compliance burden. However, the article emphasises that the crucial factor is the quality of the fund’s investment decisions. If you lack confidence in picking investments, paying for professional management may be the better option.
I'm 22 with about $90,000 — should I buy a home in Wollongong or keep renting?
There’s no one‑size answer. The article reminds readers that rent is the price of shelter and not necessarily 'dead money.' With a large deposit you could buy, but you should weigh expected capital gains against ongoing costs such as interest, rates and maintenance. If you’re a disciplined saver and can find an undervalued property in a good location, buying could be a good option; otherwise renting while you build experience and continue saving is reasonable.
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