Reprieves still hard to come by

IN RESPECT to the tax on excess non-concessional contributions, you ended a recent answer with the statement "that the government has announced temporary relief for first-timers". I have received advice that I have been assessed as being liable to pay more than $70,000 in excess contributions tax. This has apparently come about because I paid $1000 to a super fund to claim a co-contribution which was not brought to the attention of another super fund who had re-contributed the maximum amount as part of an estate-planning exercise, resulting in a breach of the cap. I am retired and have not heard from the tax office in the year since their first letter. What is the temporary relief you refer to and how do I determine if it applies to me? G.J.

This penalty regime has turned into a huge obscenity within our financial system and the government cannot use any excuse other than excessive greed to maintain it. The latest figure I can find is that the government has collected $400 million up to 2008-09.

The one minor relaxation, announced in the May 2011 budget, is that from July 1, 2011 onwards, people who breach the concessional contributions cap of $25,000, or $50,000 for the over-50s, by $10,000 or less can request that the excess contributions be withdrawn from their super fund and refunded to them. That money will then be taxed as income at the individual's marginal tax rate.

This optional refund only applies for first-time breaches of the concessional caps. Details are on the Australian Taxation Office website.

Rules, Britannia!

I am a 67-year-old self-funded retiree and own my home. I have $390,000 in superannuation and I receive $12,300 a year from the pension and $15,200 a year (indexed) from my industrial super fund. I own four properties, valued about $700,000, which generate $24,000 a year. I also have $400,000 in UBank and a $3500-a-year British pension. Owing to family illness, I am considering returning to Britain and do not anticipate that I will return to Australia. Should I sell my properties and reinvest in Britain? Should I keep my superannuation here in Australia or withdraw it and invest in a superannuation fund in Britain? L.B.

Given the differences in economic fortunes, it would seem better judgment to retain your assets here in Australia. Your British pension, if it is an NIS pension, would again become indexed after your move back to Britain.

Your Australian pension, rental income and bank interest could all be transferred regularly over the internet from your Australian bank account to a British bank account but I would check the costs. You should research online for ex-brokers who could save you quite a lot in fees and exchange-rate costs.

Under the British/Australian tax treaty (which can be found on the internet), interest payments earned in Australia and sent overseas to non-residents are subject to a 10 per cent withholding tax. With regard to property ownership, if you go overseas and cease to be an Australian resident for capital gains tax purposes, you are taken to have disposed of your property for its market value at the time. As an individual, you can elect to disregard these gains or losses until you sell your "taxable Australian properties", in which case they are then subject to CGT.

You could find an accountant familiar with both British resident and Australian non-resident tax rules at any one of the medium-size international accounting firms such as PKF, BDO or Grant Thornton even H&R Block has a British office. Inquire about their fees before making an appointment.

The two certainties in life

My wife and I are retired and in our early 70s. We each have approximately $500,000 in our respective superannuation funds. We own a modest and well-maintained house and a well-presented unit with good long-term tenants. We have two married sons without children and there is no prospect of them having children. We are interested in estate planning and would appreciate your advice on minimising taxes in respect to possible duties at a later stage. B.R.

There are no death duties as such in Australia. Your own home, if sold within two years of the last survivor's plunge from your earthly twig, is exempt from CGT. It will remain exempt if one of your sons moves in and claims it as his principal residence. Your post-85 investment property will retain its cost base when inherited, though no CGT is payable until it is sold.

Any money left by the final survivor in your super funds will be taxed at 16.5 per cent on its taxable component, though not on its tax-free component. Assuming one is forewarned that the twig is about to give way, the survivor can plan to withdraw all benefits without tax as late as possible in life, assuming no change in the current tax rules.

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.