Ask Noel
I'm 35 and single with no family, earning $105,000. I have $106,000 in super, and a $48,000 mortgage on a house worth $380,000. I save $2000 a month into an offset account, but have no other debts. I plan to first pay off my house then invest in property or increase my super, but I'm worried what would happen if I was made redundant.
By building up funds in the offset account, and not paying them off the mortgage, you are building up a good safety buffer. In any event, if you became redundant, the interest on a mortgage of $48,000 should not be more than $55 a week - much cheaper than rent. As you have the bulk of your assets in residential property now, a better option for investment may be good share-based investments - a big advantage of these is that you do not need to commit yourself for hundreds of thousands of dollars as you do for property.
We are a married couple aged 70 and 63, both working, with a combined income of $80,000 gross, and plan to retire in two years. We own our home worth $450,000, have $120,000 in shares, and $120,000 in term deposit earning 4 per cent. We also own an industrial shed valued at $400,000, returning $2000 a month with a mortgage of $80,000. Do you think we should buy another investment property such as a house, and borrow another $350,000, or buy more shares? We are hoping to arrange our affairs so we can get all or some pension.
The name of the game is diversification - as you already have $850,000 in property, it would make sense to continue moving into shares. Borrowing money will not increase your eligibility for the age pension and, in any event, I think it's potentially risky at your stage in life. You will certainly qualify for a part pension based on the information you've provided, but you should be talking to a good adviser to optimise your affairs from a risk-profile aspect, and also to maximise your Centrelink eligibility.
My husband and I are 56, earn a combined income of $170,000, own our home valued at $530,000, have $20,000 cash, $900,000 in super, and no other debts. We salary sacrifice $25,000 a year each. There is an unrestricted non-preserved component of $100,000 in my husband's account that we could withdraw now, and wonder if this money could work harder for us. We are thinking of putting a deposit on a unit valued at $550,000, paying it off over six or seven years, and retiring in our early 60s. We would like to keep the unit as a residence or for investment. Is this wise or should we continue to salary sacrifice?
The success of your strategy depends on your ability to find a property with strong growth potential. If you are convinced you can do that, you will maximise your returns by borrowing the entire purchase price of the investment unit using a home equity loan over your home in lieu of a deposit. You could then continue to salary sacrifice and enjoy the tax benefits of this. When you retire after age 60 you could withdraw the funds tax-free from super to pay off the loan on the unit.
I have heard that if you move out of your principal place of residence and rent it out, whether or not you own other investment properties, there is no CGT payable for a six-year period on the principal place of residence.
You can be absent from your residence for up to six years without losing the CGT exemption as long as you don't claim any other property as your principal residence in that time.
I am 25, work full time, and my husband and I have a combined income of $130,000. We have $55,000 in savings and each have a first home saver account we cannot access until 2016. When this becomes available, we should have an additional $32,000 each. We are interested in buying our first home, and I recently inherited $170,000 worth of shares. Should we take advantage of the current low interest rates, sell some of the shares, and put the FHSA savings into the mortgage later on; or wait until we can use the additional $64,000 from the FHSA towards a deposit?
There are signs that the residential market is picking up, and you may find yourself paying a higher price for your dream home if you wait for three years. I suggest you watch the market closely and make a move the moment you see prices moving up strongly. Just make sure you take advice on the capital gains position before you sell any shares - you will inherit the capital gains liability of the deceased but this is not triggered until you dispose of them.
The explainer
Savings for kids? Don't bank on it
My wife and I set up a trust account when our son was born and we plan to give him the money on his 18th or 21st birthday. He was three in January and his account is now $4120, including interest. We plan on doing the same for our recent second child. Is this the best investment for our children?
Investing for your children in a bank account has two major problems - no long-term growth prospects and punitive tax on the earnings once interest income exceeds $416 a year. A much better option would be share-based investment bonds, about which I've written extensively in this place before.
Frequently Asked Questions about this Article…
Keeping savings in an offset account builds a useful safety buffer and preserves flexibility. The article notes that with a $48,000 mortgage the interest would be relatively small (around $55 a week), so keeping money in offset rather than permanently locking it into the loan can protect you if your income changes and still reduce interest costs.
If you’ve built up an offset buffer you’ll be in a much stronger position. The example in the article shows a $48,000 mortgage would cost roughly $55 per week in interest, which is typically cheaper than renting. An offset account plus reducing discretionary spending can help you ride out a period of redundancy.
The article recommends diversification: if most of your assets are in residential property it often makes sense to add good share-based investments. Shares let you invest smaller amounts, spread risk more easily and avoid the large capital commitments required for additional property.
No. Borrowing money will not increase your eligibility for the age pension. In fact, the article flags that taking on more debt can be risky, especially later in life, and recommends talking to a qualified adviser to optimise your affairs and Centrelink outcomes.
Yes, you can be absent from your home for up to six years and still retain the principal place of residence CGT exemption, provided you don’t nominate another property as your principal residence during that time.
The best approach depends on whether you can find a property with genuine growth potential. The article suggests that rather than using the non‑preserved cash as a deposit, you could borrow the purchase price via a home equity loan and continue salary sacrificing to keep tax benefits. After age 60 you could withdraw super tax‑free to repay loans, but this strategy relies on strong property selection and personal circumstances.
The article cautions that the residential market may be picking up, so waiting could mean higher prices later. It recommends watching the market and acting when prices start to move up strongly. Crucially, get advice on the capital gains position before selling inherited shares — you inherit the CGT liability and it isn’t triggered until you dispose of the shares.
Not usually. The article points out two major problems with bank accounts for kids: poor long‑term growth prospects and punitive tax on earnings once interest exceeds $416 a year. It suggests share‑based investment bonds as a better alternative for long‑term savings for children.
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