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.

I am 28 and have saved an 80 per cent deposit to buy my first home. About 70 per cent of my savings is in equities, which will be sold to pay for the house. However, I am keen to keep the shares after buying the house, as I am a believer in the equities market, and regard the home equity as a cheap and safe source of capital, especially with the tax deduction for the interest. When I acquire the property, do I need to cash out of the shares, purchase the house and then reacquire the shares in order to make the split loan on the line of credit tax deductable? Obviously this isn't ideal as it incurs transaction costs, and can trigger some capital-gains tax.

Congratulations on what you've achieved to date. Unfortunately you cannot rewrite history, so you will need to cash in your shares to increase the house deposit and then, using a home-equity loan, if possible, borrow to replace those shares. The beauty of shares is you can do this in small parcels, if that would help minimise your tax, and you may also have some shares that carry a capital loss. You could redeem these to offset capital gains.

I am an age pensioner with $20,000 above the assets limit for a full pension. My wife is younger than me. If I buy a new car for $30,000, would that be treated as an asset? Could I take a holiday, spend money on improving the house or buy a funeral bond instead?

The car would be treated as an asset, but spending money on holidays or house improvements is exempt. You could also invest in a funeral bonds up to $11,500.

My wife and I are retired, aged 67 and 72. We receive the age pension topped up with a monthly payment from super. The bulk of our investment is in cash. Our fund advises that cash has returned 3.75 per cent in the past year and averaged 4.70 per cent for the past seven years. For the same period, bonds have yielded 10.25 per cent and 7.29 per cent respectively. What risks are involved in bonds compared to cash? Our investment is $240,000.

A recipe for failure when investing is to make future decisions based on short-term past performance. Bonds do well when interest rates are dropping but can give you a capital loss when the interest-rate cycle turns and rates start to move up again. I recommend you take advice about diversifying.

I am 66, retired, debt free and own my house. I have $115,000 super in the cash option and $60,000 in the bank. Will I be eligible for a full pension and what do you suggest is the best thing I can do with what little money I have?

If the assets you mention are all you have, and you don't receive any private income, you would certainly qualify for the full age pension if you are a couple, but would lose a little pension under the deeming rates if you are single. As your assets run down, the pension increases. You can still get most of the benefits that go with the age pension even if you don't qualify for the full pension.

I have just bought my second property and my first property is now considered an investment. For tax purposes, my accountant has encouraged me to pay interest only and use the offset to accumulate extra money. Is it better to be paying interest plus principal, and would a variable interest rate be preferable? My ultimate goal would to be to have the rent pay off the loan so I do not need to contribute - in future, I would like to keep the property and use the rent as income. What is the best way to achieve this?

I agree with keeping the loan on an interest-only basis and accumulating excess funds in the offset account. This gives you maximum flexibility at no additional cost.

There are two schools of thought about reducing debt and you have to decide which is the best for you. You can concentrate on reducing your investment debts and increase the equity in those properties, and then borrow for further investment at a time that suits you. This is the more conservative method. Or, you can leave the loans on an interest-only basis and hope inflation will increase your equity and keep any additional funds you have for additional investment.

The explainer

Try bonds to bring the family together

We deposit $50 a month into our three boys' personal accounts. What are the tax implications for them? Is there a better method to assist them when they turn 18?

Once the income from the investment reaches $416 a year they will face the punitive children's tax. This will happen irrespective of whether the money is held in their name or yours as trustee. I appreciate this might not affect you right now but it would be wise to take advice now about using investment bonds. These are tax-paid investments and are a way of getting around the children's tax. A good share-based one should give you much better long-term returns than bank deposits. Don't confuse them with government bonds - they are a different investment altogether.

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