Ask Noel
In 2003 I bought a piece of vacant land for $90,000. I paid it off by 2007, only to then use it as collateral to buy a rental home for $135,000. I now have the home rented for $185 a week; the repayments are $230 a week. The vacant land is valued at $205,000. Should I sell it in a depressed market and pay off the $135,000 loan?
In 2003 I bought a piece of vacant land for $90,000. I paid it off by 2007, only to then use it as collateral to buy a rental home for $135,000. I now have the home rented for $185 a week; the repayments are $230 a week. The vacant land is valued at $205,000. Should I sell it in a depressed market and pay off the $135,000 loan?Provided you believe the land has the potential for capital gain, I would do my best to hold it as capital gains tax will take a chunk of the proceeds if you sell it and you will be losing some of the tax breaks you are now enjoying on the rental property. I suggest you obtain a quantity surveyor's report on the rental property to ensure you are maximising the tax deductions.I'm 63 and my wife is 60. At the beginning of this financial year we converted our super fund into a transition-to-retirement fund. We are taking a minimum 4 per cent pension from our super fund while still working. Our salary is mostly sacrificed into super and is less than 10 per cent of our total taxable income. Before this financial year we thought we'd contribute personal deductible and undeductible contributions into the super fund. I understand the salary sacrifices and personal deductible contributions are taxed going into the super fund at 15 per cent but is the future income from these contributions taxable? Do we need two accounts - one for the tax-free pension account and one for the accumulation account? Is the minimum pension of 4 per cent annually reassessed on the total value of the fund in future, not just the pension component?It is not possible to make contributions to a transition-to-retirement fund, so I assume you are making contributions to a separate super fund. All income within the TTR fund is tax-free but income within the super fund will be taxed at the normal super rate of 15 per cent. The minimum pension will be calculated on the balance of the TTR fund only.What is a line-of-credit loan?It works like the old-fashioned come-and-go overdrafts. A credit limit is established and you are free to make deposits and withdrawals at any stage so long as you do not exceed the agreed limit. They can be a trap if the borrowings are for investment because any deposits into the loan are regarded by the Tax Office as a permanent repayment of debt and withdrawals are treated as a fresh loan. This is why borrowers should not fall into the trap of paying their salary into the loan and then redrawing it for private expenditure.This article is general in nature. Readers should always seek further advice before making financial decisions.Noel Whittaker is a director of Whittaker Macnaught, a licensed dealer in securities. To ask a question write to Ask Noel, Money, GPO Box 2571, Qld 4000, or see moneymanager.smh.com.au/sitewide /askanexpert.html.I have $11,000 saved for my son, 17. He is at school and has a part-time job earning less than $450 a month - thus with no super. Would it be better to put $1000 in a super account for him, allowing him to get the co-contribution, or keep the money invested and use it for uni fees in a couple of years to reduce any HECS debt?I suggest you give him $1000 which he can place into super as a non-concessional contribution and so qualify for the $1500 co-contribution. If you keep this up for the next six years, you will have given him a very healthy start to his retirement portfolio at little cost. Any surplus money could then be directed to HECS.
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