Ask Noel

Each week, financial adviser and international best-selling author Noel Whittaker answers your questions.

Each week, financial adviser and international best-selling author Noel Whittaker answers your questions.

It seems to me that the government have made an error when they have assumed that 5 per cent is a reasonable annual return for a super fund. Just this year, my fund has returned 14 per cent. Wouldn't this mean it would only take the assets in your super fund to be worth $700,000 before the income would be $100,000 and you would be hit by the penalty tax.

Keep in mind that the proposed tax applies to funds in pension mode only and that it is only levied on the taxable income in the fund. If the fund returned 14 per cent in a year when the sharemarket was doing well, the return may well be 10 per cent capital growth and 4 per cent income. Only the income would be taken into account when calculating the taxable income. A factor which would boost the fund's income is grossing-up franked dividends. For example, if a fund received $70,000 in franked dividends the imputation credits that go with them would be $30,000 - this would gross up to $100,000 when the taxable income is calculated.

Is the 30 per cent contributions tax for high income earners still going ahead?

It was announced in the budget last year and is supposed to be in place for contributions by those earning more than $300,000 in the current financial year. However it is not yet legislated and may never become law. There are complexities about it which I doubt were understood by the government when they introduced it. There is no special tax per se levied on concessional contributions - the tax is calculated by treating concessional contributions as taxable income of the fund. Because a super fund pays income tax at 15 per cent, the effective tax on a concessional contribution is 15 per cent. If this tax is to become 30 per cent for a certain class of taxpayers there will need to be upgrades to the software of the major institutions. This may cost more than the tax would raise as was the case with the Howard government surcharge introduced in August 1996.

I am 27 with an annual income of $73,000. I bought a house for $680,000 in 2012 with a bank loan of $580,000. I wonder if I made the right decision.

The deed is done so there's no point in wondering now if you've made the right decision. You are heavily committed for your income, but with hard work you will be fine. For maximum flexibility, keep any surplus funds in an offset account. And you can always rent it out and enjoy the benefits of negative gearing. Provided you rent somewhere modestly, your cash flow will increase and your taxation decrease.

I was under the impression that a self-managed superannuation fund could not borrow money for investment purposes. Could you clarify this for me?

The laws have been changed but the process is onerous. There are certain structures to set up to buy or hold leveraged assets and there are particular restrictions placed on property bought within them. This is a highly complex area and you need to assess your individual situation. Be sure to take qualified and considered advice from a quality planner.

Home-saver accounts make most sense

The explainer

I am 30 and would like advice regarding the best way to invest $20,000. The goal is to make as much money as possible in the next two years to use as a home deposit. I have had a savings account with ING for a few years and am wondering if I should stick with this, put the money into a term deposit, or invest it in some other way. I do not have any knowledge of investing whatsoever.

If you're saving for a house deposit, stick with a cash-type investment because you don't want entry or exit fees, or the risk of losing part of your money if the market falls. Make sure you have an attractive interest rate and low or no fees, which I know you already have. You should also investigate first-home saver accounts, where there are substantial tax concessions, but you need to understand that you are required to have contributed at least $1000 each year for four consecutive financial years to be able to access your money.

This is not four years from today because you could contribute the first deposit before June 30, the next before June 30, 2014, the next before June 30, 2015 and the final one on July 1, 2015.

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