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  • Consider pension hit before giving money to family

    2019 - 09.27

    My father is 93. He owns his home, worth $600,000, plus he has about $100,000 in cash and shares. He is considering giving one of his children, my brother, $50,000. Would this have any effect on his pension?

    Once the gift was made $10,000 would cease to exist for Centrelink purposes, and the remaining $40,000 would be subject to the deprivation rules for the next five years and be subject to deeming. However, he should be receiving the full pension now because its assets are well under the threshold – therefore the gift should have no effect on his pension.

    There seems to be a difference between industry super funds and commercial ones in their charges for transferring, to an accumulation account, any excess over the $1.6 million pension cap. I have discovered that UniSuper will transfer such an excess to matching investment funds without additional charge. On the other hand, Colonial First State advises it will impose “buy/sell” spread fees of up 0.65 per cent of the amounts being transferred.

    Furthermore, neither fund offers facilities for nominating automatic monthly or other regular payments out of accumulation accounts to correspond with the pension payments. A separate request for payment must be made for each payment – accumulation accounts are for saving for a pension they say!

    You are correct that UniSuper does not apply buy/sell or any other transaction fees in this situation and does not offer automatic payments from an accumulation account. However, Colonial First State advises there are no buy/sell applied on those transfers, and regular monthly transfers can be set up. It may be worthwhile asking the person who supplied the information how they came by it.

    We have had an investment property since 1992 – purchase price $125,000 which will obviously attract capital gains tax when sold. Current market value is $690,000.

    I have no reason to sell it at the moment but will offload it closer to my 65th birthday, thereby depositing the net proceeds into super. Are there any benefits or reasons to sell earlier and are there any ways to reduce CGT in retirement?

    Just keep in mind that you cannot make after-tax contributions once your balance is $1.6 million in super – and deductible contributions are limited to $25,000 a person a year, and are subject to 15 per cent contributions tax.

    You can certainly reduce the impact of capital gains tax by making deductible contributions up to the $25,000 limit – but keep in mind that it includes employer contributions. Therefore, it makes sense to wait until you are not working if you believe you can benefit from this strategy.

    By 2023 you may be able to make five years’ worth of contributions, that is $125,000 less any contributions made in the previous five years. From July 2018, anyone with a superannuation balance of less than $500,000 will be able to access their unused concessional contributions caps to make additional concessional contributions, to be known as catch-up contributions. Remember only unused amounts accrued from July 2018 will count, and amounts carried forward that have not been used after five years will expire.

    Currently I own shares outright and have a home loan. It’s just occurred to me that I’d be better off if the equity in the shares was against the house (owner occupied), and the shares were treated as an investment, with interest tax deductible. Is it possible to refinance the shares with an investment loan to achieve this?

    If not, what about setting up finance so that future dividends are banked in the offset, with an equivalent amount effectively reinvested, but financed through the investment loan? Also, any new share purchases would be financed through the loan.

    For the interest on a loan to be tax deductible the purpose of that loan must be to buy income producing assets. Therefore, refinancing an unencumbered share portfolio would not qualify. One option is to sell the shares, pay the proceeds off the non-deductible home loan, and then borrow back to buy more shares. The only drawback with this strategy is possible capital gains tax. You could certainly bank all future dividends into the offset account, or the loan itself, and then borrow back for more shares. Just make sure you keep the investment loan strictly separate from the housing loan.

    I’m 40 years old and seriously thinking about a career change, what advice would you give to someone my age looking at moving into financial planning?

    There is a shortage of people in the financial planning industry and the services of financial planners will be increasingly needed as the population ages and the Baby Boomers retire. It is a wonderful industry and the best way to start is to get any sort of a job with a respected financial planning organisation. You could start as a client service officer, dealing with client queries, and then move to para-planning and finally advising. The company will recommend what study is required.

    Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: [email protected]苏州美甲美容学校419论坛.

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