Each week financial adviser and international best-selling author Noel Whittaker answers your questions. email@example.com
I am 61, work full time and my only debt is an investment loan. I salary sacrifice $34,500 a year to super and have $500,000 in the fund. I am thinking of transferring my super to a pension account so the income earned is tax-free, although the fees charged by the fund may negate any tax savings. Do you agree and what other options would you suggest?
Fees should not be an issue, because the pension fund will almost certainly be charging similar fees to your present superannuation fund. I think this presents a good strategy as all earnings and capital gains will be tax-free in the pension phase, and, should you not require the tax-free pension income, you can contribute it back to super as a non-concessional contribution. If the overall fees are an issue for you, consider reviewing your superannuation provider. Keep in mind that money in superannuation in the accumulation phase is not counted by Centrelink for age pension purposes.
On July 1, 2010, my mother transferred her home to my wife and I in exchange for a "Life Interest", allowing her to live in the home as long as she wished. In January 2013 she moved into a nursing home and the house was subsequently sold with a contract date in May 2013 and settlement on July 1, 2013.
At the time of the initial transfer the house was valued at $205,000 and stamp duty was paid by my wife and I on that amount. The selling price for the home was $230,000 with selling costs of $10,000. In this situation, is the CGT based on the valuation of the home at the time of the initial transfer, or the actual amount my wife and I paid my mother for the house ($0)? My wife and I have no other taxable income, me being over 60 and living on the proceeds of superannuation.
Julia Hartman of BANTACS advises: The trouble with life tenancies is that the market value cost base of the house when transferred to you is a lot less than you have considered, because the valuation must take into account the fact that you cannot rent the property out or live in it freehold for the life expectancy of your mother. Accordingly, you could have a lot higher capital gain than you expect. The ATO ruling on the matter is TD 2006/14. I recommend you seek expert assistance and suggest that readers avoid life tenancies whenever possible.
My wife and I are in our early 40s with two young children. We have a $200,000 mortgage on a house valued at $1.2 million, plus $400,000 in super. I earn $140,000, salary sacrifice the maximum allowable - my wife does not work at present. We are looking to invest up to $400,000 in property. Is this a good idea, or should we be investing in other products, and trying to reduce our mortgage?
In your position, you should be able to repay $2400 a month on your mortgage, which will take interest rates out of the equation and have it paid off in just under 10 years. If you can do this, you are wasting precious resources by increasing your home loan repayments. You are the only one who can decide whether shares or property will provide the best long-term returns, but my inclination is to favour the sharemarket because of the flexibility shares give and because you have the bulk of your assets in the residential real estate basket now. Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature. Readers should seek their own professional advice before making decisions. Email: firstname.lastname@example.org.
Healthy income needs protection
I am 43, divorced with two dependent teenage children. My salary plus bonuses ranges between $200,000 and $300,000. I am negatively geared with houses in Sydney valued at $3.6 million, and interest-only mortgages of $2.4 million, giving me annual tax refunds of $40,000 to $50,000. I contribute $25,000 annually into super and my current balance is $200,000. I have $300,000 in tax-paid insurance bonds that will pay out over the next few years, which I will use to pay down the mortgages. I also have a life insurance policy covering trauma and critical illness.
I enjoy my job but want the option of retiring at 55. Should I continue with my current plans, or could you suggest a different strategy?
You are in a good financial position, but keep in mind that you cannot access your superannuation until age 60. Therefore, if you wish to retire at 55, you should focus your resources on accumulating sufficient assets outside super to see you through until you turn 60. The insurance bonds are a great investment for this - just make sure they are investing in shares to maximise the potential growth.
A further benefit of the bonds is that your money is not tied up for 10 years, it is on call. This means you could use your tax refund to invest in more bonds in the knowledge that you could withdraw money from them if you found yourself unable to work. Consider taking out a good income-protection policy - a healthy income is critical to the success of your current strategy.
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