Ask Noel

We have an investment property with a mortgage of $750,000. We earn $30,000 in rent a year but the outgoings are $55,000. We have the capacity to buy another investment property as our annual combined pre-tax income is $400,000, but we do not want to be financially constrained. Is it sensible to reduce the loan to a more manageable amount of $500,000 before embarking on the purchase of another investment property? We own our home and have no other debts.

We have an investment property with a mortgage of $750,000. We earn $30,000 in rent a year but the outgoings are $55,000. We have the capacity to buy another investment property as our annual combined pre-tax income is $400,000, but we do not want to be financially constrained. Is it sensible to reduce the loan to a more manageable amount of $500,000 before embarking on the purchase of another investment property? We own our home and have no other debts.

Your current shortfall is only $25,000, tax deductible, so it should not be too much of a financial burden to borrow for another property once the income from the new property and the tax advantages of negative gearing are taken into account. Of course, major factors to consider are the capital-gain potential of any property you buy and the strength and reliability of your present income.

My partner and I are both 52. My income is $86,000 a year and my partner's is $75,000. At present, our combined super equals $404,000, we own our home and have no dependants. We have two investment properties, which, when sold, will give us at least another $360,000 after the capital gains tax has been paid. We want to retire at 55, or at least scale down to three days a week until we are 56, then down to full retirement if possible. We feel we could salary sacrifice the full $25,000 to both super funds next year and possibly again in our final work year (although that isn't a certainty). Would retirement at this age be possible?

It's impossible to give a definitive answer because how much you will need when you retire depends on a multitude of variables, including your spending habits, how long you will live and the rate of inflation. You have done very well to date but your top priority should be to sit down with a financial adviser and decide exactly how much you will need when you retire and what strategies you need to achieve your goals. I would certainly recommend salary sacrificing as much as you can until you retire.

We owe $398,000 on an interest-only loan over an investment property that's valued at $350,000. Should we look at paying down the principal or just leave it as is and hope that in a few years, capital gains will take over? Is it worth setting up an offset account or is it better to continue maximising tax deductions?

The problem with paying down a tax-deductible loan is that the effective return on the money so invested is probably less than 4 per cent when tax is taken into account. If you don't have a non-deductible home loan, I would opt for the offset account. Alternatively, make extra contributions to super, which can be withdrawn at some stage to pay off the debt.

I am 30 and earn $104,000 a year. I have $15,000 in savings but no other investments and have recently received a free house as part of my salary package. I have no debts or dependants. However, I need a new car and have the option to salary sacrifice. My goal is to save enough money to put a substantial deposit towards my first home in about four to five years. What would be your advice to help me achieve my goal?

If you don't have concrete goals, it's easy to fritter your hard-earned money away. My advice is to decide exactly how much you'll need in four years for a home deposit and divide that by 48. Make sure that every month, that sum is deposited in a separate bank account. Do not touch this under any circumstances. You should also investigate the first-home saver account because that offers tax benefits for part of the deposit.

We have an investment property with a current market value of $720,000. We bought this property three years ago for $500,000. For the first two years, we lived at the property, which is currently rented out. We are now renting and bought land. We plan to start building soon. If we sell our city property and reuse the profits for our new home or another investment property, do we need to pay any tax on the profit?

Make sure you talk to your accountant before signing any contracts but based on the information you have given, you should be within the six-year capital gains tax exemption period, provided you lived in the house before you rented it out and have not claimed any other property as your principal residence since.

I've received a $65,000 inheritance. My husband and I are in our late 50s and have little super. Our mortgage is $180,000. What would you suggest is the best way for us to invest this amount?

At your stage in life, the best strategy is probably to pay it straight off the housing loan, as long as the interest on that loan is not tax deductible. You should then seek advice on the possibility of drastically reducing the amount you repay on your mortgage and substantially increasing the amount you salary sacrifice to super. This should be highly tax effective as salary-sacrificed contributions lose just 15 per cent in contributions tax.

I have two investment properties with a combined value of about $1.5 million and related investment mortgages totalling $950,000. In addition, I have a $130,000 blue-chip share portfolio invested in my unemployed wife's name. Our family home is valued at about $500,000 and has a mortgage of $130,000. Is there a way of transferring the debt from the family home to either the investment property or against the share portfolio so the interest can be tax deductible?

The only way out is to sell investment assets and use the proceeds to eliminate the housing loan. Then you can borrow back against that house to buy other investment assets. As the purpose of the second loan is for investment, the whole of the interest on that loan would be tax deductible. Before you take any action, check out what transaction costs and capital-gains tax is involved. It is possible that the costs may outweigh the benefits.

Our mother lived in her house until her death 10 months ago. My brother and I are the beneficiaries. The house is worth about $850,000 and I understand that if we sell within two years, we will be excluded from capital gains tax. However, if I pay my brother $425,000 for his half, live in the house for 10 years and then sell, do I pay only half the CGT.

Assuming this house was your mother's main residence, it was not being used for the purpose of producing an assessable income, and she bought it after September 19, 1985, your brother can sell it to you free of CGT within two years of your mother's death. If you buy the property and use it only as your residence, you will be free of CGT when you sell it. If your mother bought the house before September 20, 1985, and it becomes your main residence for your entire ownership period, it will also be CGT exempt when you sell it.

I'm 32 and earn $105,000 a year. I have super worth $150,000 with employer contributions of 15.4 per cent and I add an extra 5 per cent. I'm currently renting. I have an investment property worth $270,000 with an interest-only loan. After rent, it costs me $500 a month. The property isn't appreciating and I've been unable to sell it. I'm considering taking it off the market. I have a consolidated line-of-credit owing $38,000 separately to my home loan, with the ability to redraw $12,000. I also have $10,000 in credit-card debts. I have no savings (just $500 in shares) and have spent a lot on luxuries and travel. Would my voluntary super contribution at $200 a fortnight be better used reducing the debt on the cards or line-of-credit?

In view of your young age, I would certainly prefer you reduced your debts than contributed money to super, where it may be inaccessible until you are 60. However, your main priority should be getting your finances in order if you don't do this, you'll spend the rest of your life on the debt treadmill. Remember, it is not how much you make it is how you spend it.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature. Readers should seek their own professional advice. Email: noelwhit@gmail.com.

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