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Rolling over to escape the tax man

Pensions offer the most straightforward form of income in retirement and keep the ATO at bay, writes George Cochrane.

Pensions offer the most straightforward form of income in retirement and keep the ATO at bay, writes George Cochrane.

I AM a member of a defined scheme (Defence Forces Retirement and Death Benefits Fund) and am wondering about the advantages of taking a full pension (indexed CPI) of $90,000 when I retire, or commuting to a $65,000 pension and $443,000 lump sum (of which $215,000 is tax free), the rest being taxable and/or untaxed? I own my own home and will have other super lump sums of about $257,000 available. I am 56 years old and intend to retire at 58. I am concerned about the tax on all of this and intend to rollover the lump sums until 60 then take them as an income stream to minimise tax. A.T.

Assuming your health is good and there are no exceptional family circumstances, I would consider taking the full pension given that you, hopefully, have a long life expectancy. It provides the most hassle-free form of retirement income.

For tax reasons, you may be better off waiting until age 60 before retirement as the government-sourced portion (that is, the untaxed portion of your pension) would be fully taxed until then. After age 60, you will receive a 10 per cent tax offset.

Lump sums also have reduced tax liabilities after that age. Under 60, what is bizarrely known as the "taxable component-element untaxed" (in this case, sourced from the government's consolidated revenue) is taxed at 16? per cent on the first $165,000 and 31? per cent thereafter. From 60 on, this is taxed at 16? per cent up to the "untaxed plan cap" of $1.205 million.

That portion of the lump sum earned as interest on the post-tax contributions from your pay during your career and known, equally bizarrely, as the "taxable component-element taxed" is tax free up to $165,000, then 16? per cent on the rest under 60 but is completely tax free from that birthday on.

You don't give enough detail here but should be able to get a breakdown of your personal tax liability from ComSuper.

Don't rely on figures in the DFRDB website's fact sheets they are hopelessly out of date.

Get expertise in the house

I WOULD like to protect our family home from being taken if my partner's business were to collapse. We purchased our family home jointly. He is a company director in a high-risk industry (aviation). While he is insured, the insurance company cannot provide coverage over prospective loss (for instance, if a plane is grounded). In a worst-case scenario if this were to happen, he could be sued for millions and our family home could be at risk. I was told not to bother transferring the mortgage to my name alone, as his name would still be on the title. To transfer the title to my name would cost half the stamp duty, about $25,000. This is too much to spend. Can we develop a separate company in order to protect our assets? T.L.

An investment adviser is probably not the person from whom you will get the technical answers you need. I suggest you talk to two experts: a solicitor experienced in the fields of company and insurance law and director's responsibilities and an insurance agent trained in directors' and officers liability insurance.

Your husband won't be the only person in such a situation in the aviation industry, so there will be answers available. You might find, however, that a one-off payment of stamp duty could end up cheaper than the alternatives.

Part pension possible

I HAVE been in the government's pension-bonus scheme for three years and in another two years will be eligible for a payment of just over $40,000. I am 70, work four days a week and intend to retire after I receive the above payment. I will own my home and will have, hopefully, about $500,000 in superannuation. Would I be eligible for any aged pension under this scenario? A.S.

You should be eligible for a part pension. If a single home owner, the age pension currently only cuts out after your assets reach $686,000 (or $1.018 million if married). A single with $540,000 in assets would be awarded about $210 a fortnight and a married couple about $700, both under the assets test. All of these figures will change two years from now, as may the deeming rates for the income test.

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.

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