Superannuation will become a less attractive option if new tax-free threshold rules take effect, writes George Cochrane.
MY HUSBAND is 57 and I am 53. My husband has $66,000 in super he lost 15 years of super in a financial crash several years ago and I have $127,000. I have an inheritance of $218,000 invested at 7.63 per cent. We own our home and our business strata title is valued at $200,000. We have a fixed-term deposit of $29,000 and cash in the bank of $18,000. We are in the midst of selling our business for $80,000 and hope to rent the premises for $1500 a month. What is the smartest way for us to combine all our assets to make us an income? How do we make our money work for us until we are old enough to receive any form of pension and/or benefits? L.F.
You have a couple of options. One plan is to not use superannuation. With the proposed huge rise in the effective tax-free threshold the combination of the $6000 general concession plus the low-income tax offset rising from $16,000 to $20,542 a person on July 1, you can have more than $820,000 in joint assets earning 5 per cent and not pay tax.
Instead of a system that encourages Australians to save for the long term, the result will be to make super less attractive, to be used mainly for compulsory contributions or by the very rich.
The one advantage super will retain is the ability to draw a tax-free income after age 60 without having to file a tax return each year.
However, you may find super useful if you have a capital gains tax liability after selling your business because you can use the small business rollover concessions to eliminate the liability. Talk to your accountant.
Alternatively, if you expect income from other sources, you can choose to use the super system. Being over his "preservation age" of 55, your husband can retire and convert all his super benefits to claim a pension from his super fund. It will be taxed until he turns 60 and will also attract a 15 per cent tax offset while subject to the tax-free threshold mentioned.
If your income from your inheritance drops, you can add this to your husband's super as a non-concessional contribution, along with the cash from the sale of the business, noting that you will trigger the three-year "roll-up" cap of $450,000. Remember, too, that when people retire after the age of 55, this triggers a "condition of release" to convert their super to non-preserved status.
However, if they make further contributions later, these become preserved until the person meets a new condition of release, such as retiring again from a new job, or reaching the age of 65.
If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW 2026. Helplines: Banking Ombudsman, 1300 780 808 pensions, 13 23 00.