I am over 60, and my SMSF is in the pension phase. It contains shares held for more than five years, and if they were sold now, or any time while I am alive, there would be no capital gains tax. I understand that when I die in, say, 10 or 15 years, the SMSF will automatically go into the accumulation phase. When the shares are eventually sold to wind up the SMSF, I understand CGT will apply on all the gains accrued, not just on the gains since my death. Am I right? Do you have a suggestion on how to legally minimise this tax?
The rules may be changing. As part of its Mid Year Economic and Fiscal Outlook report, the federal government finally clarified the tax treatment of assets in the event of a lump-sum payment from a deceased super member's account. It has announced that the law will be amended to allow a tax exemption until the deceased member's benefits are paid out. Without the legislation, it is difficult to know how the government will ultimately draft the changes. From the brief information available, it appears that the tax exemption would continue until the death benefit is paid, which must be "as soon as practicable". Unfortunately, until the legislation is written, we won't know what the government's intentions are. As you point out, you could always get around the problem by withdrawing your benefit before death.
My wife is the beneficiary in the will of her grandfather, who died in 1940. Her father was the life tenant until his recent death. Her share of the estate consists of shares in public companies, about half of which were acquired after 1985. The value is $650,000. She would prefer to receive the shares in specie and continue the investments in their present form. Could payment of capital gains tax be deferred until her eventual sale of the shares, or would the transfer to her trigger payment?
Death does not trigger capital gains tax any liability is simply transferred to the beneficiaries. Assets acquired before September 1985 will be deemed to be acquired by the beneficiaries at their market value at the date of death, and assets acquired after September 1985 will be deemed to be acquired at the cost base of the deceased. Therefore, your wife should have no capital gains tax liability until she disposes of the shares. Obviously, you should take advice from your accountant.
My mother is single, 58, and has been working in her own business for the past 12 years. She has managed to pay off her mortgage and save an extra $40,000. The house is worth $180,000, but she has no assets other than a car. Because of some physical and mental-health issues (which may be hard to prove), she can no longer run her business. She is not eligible for the age pension until she is 66. What do you recommend she do with her $40,000? And do you have any advice on future cash flow?
The simple solution is to keep the money in an online high-interest bank account, for which there will be no ongoing fees and no loss of capital if the market falls. She should also talk to the people at Centrelink, as she may be entitled to some benefits.
My father, aged 82, has recently had to go into a nursing home with dementia. He was not able to attend to his financial affairs over the past three or four years. I have recently amended his past tax obligations and put his affairs in order. I need at least $90,000 (after tax) a year to pay for my father's expenses in a nursing home with extra services. Dad has about $4.4 million in cash.
Is there something besides term deposits I could look at to consolidate my father's assets and protect against falling interest rates?
You appear to be in a position where your main goal should be to preserve capital for the beneficiaries of the estate, while at the same time generating enough income for your father's needs. A portfolio of blue-chip shares should yield at least 4 per cent to 6 per cent, which would be a more than adequate income, as well as providing capital growth. Obviously, you will need advice from a stockbroker or financial adviser, as you will need to agree on an asset allocation that suits your needs and your risk profile. This should include at least $400,000 in cash so you are never forced to dump good shares while the market is having one of its normal downturns. Keep in mind that you can always use index funds or actively managed funds if you don't want to pick individual stocks.
We are retired and about to build our home from share proceeds. Is it wise to leave our remaining shares with the four big banks only?
It is a fundamental principle of investing that you should not have all your eggs in the one basket, and this is exactly what you would do if you kept the bank shares only. Talk to your stockbroker about a diversified portfolio that will spread your risk.
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 before making decisions. Email: firstname.lastname@example.org.
I turn 75 next January and am still working. I would like to add to my super before my next birthday, but am not sure if this would attract tax penalties. If there is no chance of penalties, I easily meet the work test. Would it be better to salary sacrifice or contribute after-tax funds?
You can contribute to super until your 75th birthday as long as you pass the work test. I recommend you use both concessional and non-concessional contributions the former is limited to $25,000 a year and the latter to $150,000.