MY HUSBAND is 55 next month and has $220,000 in one super fund as well as $96,000 in Defence Force super. At 55 we can either roll over, losing 15 per cent, or take a pension of $310 a fortnight for life. We've been told it would incur about $50 additional tax so we'd get $260 a fortnight. This pension will also increase with CPI and if my husband should pass away, I would get 67 per cent of the balance. At this stage we are seriously thinking of taking the pension for life. What would you recommend?
You have to compare the tax implications of paying lump-sum tax now and investing in a way that suits you best, as opposed to taking a regular income by way of the pension, which is indexed for life. You should seek advice but factors will include your confidence in handling lump sums, your life expectancy and how important it is to leave money to your estate.
We have a self-managed super fund. If I purchased art works, where am I supposed to store them?
There were new rules effective from July 1 that created onerous conditions on the trustee. These included a prohibition on leasing the artwork to a related party, or storing it in the private residence of a related party. It is important to seek expert advice on this because there are many other new rules as well. However, if the artwork was purchased before July 1, then the trustee has a five-year transition period to comply with the new rule.
I am a single, divorced woman, 55 years old. I own my home a small flat in inner west Sydney worth $350,000. I have been given a non-repayable loan (really a gift) of $300,000 by my father. I have $40,000 in super and earn $550 a week after tax. What is the best way to invest the money? I am giving $15,000 to my adult children and am going to Europe next year. I will have $250,000 to invest. I am thinking about mortgaging my own flat and then buying two small flats one for rental income and one for capital growth. Is this a good strategy? I don't know much about investing but do not want to put my money into super, as I have no direct control over it.
The main purpose of super is to save tax so I doubt that super would be much use to a person in your tax bracket as money in super pays tax at 15 per cent on earnings from the first dollar earned. If you want control I agree that property might be appropriate for you but the outcome will depend on your ability at finding undervalued properties. If you can do this, success should be assured. Keep in mind that property is highly illiquid and needs to be held for a long time to make up for the purchase costs and other outgoings such as rates and maintenance. You should also seek advice because managed funds or direct shares may be a better option.
I have $26,000 in managed funds with one of the major banks. I'm now 60. If I withdraw the whole amount are there any tax implications? Should I roll it over in a pension?
Unless the money is in super, the tax position is the same as any other asset you will be liable for capital gains tax (CGT), if applicable, when you redeem the funds. Your accountant will be able to assist you. You can only commence a pension with super money so, if you wish to do this, you will first need to contribute the amount into super. Make sure you take advice before you act because there could be CGT on the redemption of the managed funds and heavy penalties if you exceed your super contribution caps.
Noel Whittaker AM is a co-founder of Whittaker Macnaught. Advice is general, readers should seek their own professional advice. Contact noel.whittaker@whittaker macnaught.com.au, follow him on twitter @noelwhittaker. Questions to:
Ask Noel, Money, GPO Box 2571, Qld, 4000, or see moneymanager.com.au
/ask-an-expert.
Frequently Asked Questions about this Article…
My husband is 55 and has super and Defence Force super. Should we take the lifetime pension pay‑out or roll over and pay the lump‑sum tax?
You need to compare the tax hit of taking a lump sum now with the guaranteed regular income a pension provides. The pension option described pays about $310 a fortnight (about $260 after an estimated $50 tax) and is indexed for CPI for life, with a 67% balance payable to you if he dies. Key factors to weigh are the immediate tax cost, your ability to manage a lump sum, life expectancy and how important it is to leave an estate. Seek personalised financial and tax advice before deciding.
What does 'rolling over and losing 15 per cent' mean for superannuation?
In the article the rollover option referred to would incur a roughly 15% tax cost on the lump sum. That means one option is to take the cash now and pay that tax, then invest the remainder yourself. Because tax treatment can be complex, get advice from a tax adviser or financial planner to confirm the exact tax impact for your situation.
How does a lifetime super pension work and what are the spouse benefits?
A lifetime pension provides a regular income stream that in this case is indexed to CPI for life. The example given paid about $310 a fortnight (with an estimated $50 in additional tax reducing it to about $260). If the member dies, the spouse would receive 67% of the remaining balance. These features make pensions attractive for predictable income and survivor protection, but compare them with lump‑sum options and tax consequences first.
I run a self‑managed super fund and want to buy artwork — where can I store it under the new SMSF rules?
New rules effective from July 1 introduced strict trustee obligations. Trustees cannot lease artwork to related parties or store it in the private residence of a related party. There are other requirements too, so you should get specialist SMSF advice. Note: artwork purchased before July 1 has a five‑year transition period to comply with the new rule.
I’ve been gifted $300,000 and have $250,000 to invest. Is mortgaging my flat to buy two investment properties a good strategy?
Property can give you direct control, which you say you want, but it’s highly illiquid and usually needs to be held long term to cover purchase costs, rates and maintenance. Success depends on your skill at finding undervalued properties. Because of those risks, and because super’s primary benefit is tax savings (earnings in super are taxed at 15% from the first dollar), consider getting advice — managed funds or direct shares might suit you better if you want diversification and professional management.
If I withdraw $26,000 from managed funds at age 60, will I pay tax?
If the $26,000 is held outside super, the tax treatment is the same as for any other asset: you may be liable for capital gains tax (CGT) when you redeem the funds, if a capital gain applies. An accountant can help calculate any CGT payable. Keep in mind that to start a pension you must have the money in super, so moving money into super could involve CGT on redemption and super contribution rules — get advice first.
Can I roll my managed funds into a super pension to avoid tax and start a pension straight away?
You can only commence a super pension with money that is in super. To move managed funds into super you’d generally need to redeem the managed fund first (which could trigger CGT) and then contribute the proceeds into super — being careful not to breach contribution caps. Because of potential CGT and penalty risks, speak with an accountant or financial adviser before acting.
Who provided the advice in this article and should I rely on it for my personal finances?
The answers are from Noel Whittaker AM, co‑founder of Whittaker Macnaught. The column offers general guidance — it’s not tailored advice. The article specifically recommends readers seek their own professional financial and tax advice for personal decisions.
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