Each week, financial adviser and international best-selling author Noel Whittaker answers your questions. email@example.com.
I understand there have been changes to the HECS/HELP rules in the latest budget. Is it still worth making extra repayments?
From July 1, 2014, there will be no discount whatsoever for upfront payments under the HELP program. But keep in mind that the effective interest rate is the rate of inflation, so your decision after that date to make extra payments will depend on whether you can get a better return on your spare money than the inflation rate, which is currently 2.5 per cent.
I am 73, salary sacrifice, and satisfy the 40 hours in 30 days work criteria. I have been told that my ability to salary sacrifice cuts out at the age of 75. Is this correct? When I turned 70, my employer stopped paying the 9 per cent superannuation guarantee. As this rule will be removed from July 1, will my employer be obligated to start contributing the superannuation guarantee at the new rate of 9.25 per cent? If so, would the employer institute this automatically or should I remind it of its new obligation?
The last possible date on which a contribution other than a mandated employer contribution can be made is 28 days after the month in which the employee turns 75. For example, if an employee turned 75 on March 3, the last possible date a non-mandated contribution can be made is April 28.
Mandated contributions are those paid by, or on behalf of, the employer to the fund in relation to the member. They are either used to satisfy employer superannuation guarantee obligations or paid to satisfy an obligation under an award made by, or an agreement certified by, an industrial authority. There is no age limit for this type of mandated employer contribution.
Your employer should pay the increased rate of compulsory super automatically, but I suggest you make sure you have received the correct amount.
My in-laws wish to give a vacant block of land to my wife and I so we can build a house. The block has recently been valued at $400,000 and was acquired with two adjacent properties in about 1991 on the death of a relative, so I don't know how much it was worth at that time. Their generosity is likely to generate a significant tax bill for my in-laws. Apart from the CGT discount and the possibility of delaying our building plans until my father-in-law retires, are there any simple and legitimate ways to avoid or reduce their capital gains tax?
First, find out the current cost base. This will either be the price the deceased paid for it if it was acquired after September 1985, or its market value on the date of death if acquired before September 1985.
For capital gains tax purposes, the land will be deemed to have passed to you at its current valuation, but keep in mind that valuations are somewhat subjective, so discuss the present market conditions in depth with the valuer.
Your question implies that your mother-in-law is not working, so assuming she's under the age of 65, she can make a concessional contribution of $25,000 to superannuation as a way of offsetting the capital gain.
Your father-in-law should make sure he uses up his entire $25,000 concessional contribution cap in the year of transfer by topping up his employer contributions up with salary sacrifice if he's not already doing so. If they have unrealised losses on other assets, such as shares, they could consider crystallising these to help as well.
Make sure you involve your accountant or adviser in every step of the transaction.
Trial will help downsizing without penalty
I understand there was an announcement in the budget last week that mentioned giving retirees the ability to downsize their home and invest up to $200,000 of the surplus sale proceeds without impacting their pension means testing. My elderly mother is considering moving to care in the next year soon. Can you please elaborate?
This is a pilot program to support senior Australians to downsize from the family home to more appropriate housing - a smaller home, retirement village or granny flat.
The pilot will establish a special deposit account for pensioners, in which they can place up to $200,000 from the sale of the family home.
The money placed in the account will be exempt from pension means testing for up to 10 years, provided no withdrawals are made.
To be eligible, the family home must have been owned for at least 25 years. Those moving to residential aged care will not be able to use the account, which will earn interest.
The pilot is set to start on July 1, 2014, and conclude on July 1, 2017, and is expected to cost about $112 million.
More details will be available when the draft legislation is released.