3-05-2010:

Question:
All advice I see about changing superannuation funds, if you feel yours is not performing well, is aimed at workers and emphasises the long term. But what if you are retired and drawing an income from an allocated pension in a once-outstanding fund which has been placed on the worst performers list? Do I stick with it or do I transfer to another fund? Taking a long-term view is harder when you are over 67.

Answer:
Discuss with your adviser why the fund has suddenly performed badly. For example, it may have under- performed against the All Ordinaries Index because it was a defensive fund and heavily weighted towards cash. If you are convinced a switch needs to be made, consider the Centrelink implications. This won't be an issue if you simply switch funds and stay with the same provider, but is relevant if you change platforms. Keep in mind you might live to at least 85. The road maybe longer than you think.

Question:
We are 58, do not work, own our home worth $950,000 have $20,000 in the bank and no debt. We have a $410,000 super allocated pension paying$32,000 per annum and we desire $40,000. The allocated pension will run out in seven to nine years. We were thinking of downsizing to a home worth $500,000 and wonder how best to invest the balance for long-term capital preservation and income stream.

Answer:
If you change properties, you should free up at least $400,000 and this would boost your super to $810,000 if you progressively contributed the excess funds to super. If the fund earns 7 percent and you withdraw $40,000 a year, indexed at 3 per cent, your fund should last until you are 97. Super is the best vehicle for you because when you start the allocated pension you will be drawing a tax-free income stream from a tax-free fund.

Question:
I am 44, have no debt own my home, and have a combined income with my wife of $155,000. I am considering buying an investment property to reduce my taxable income. However, with the doom and gloom forecasters predicting property possibly dropping by 40 per cent, I am thinking about delaying this decision for 12 months. Is there another tax-effective option into which I can place my income, or should I invest in property to not miss out on the current property increases?

Answer:
Never make an investment for tax reasons alone. In any event, buying a negatively geared property won't reduce your tax bill very much when income from the property is added to your taxable income. I am in favour of borrowing for investment but you should regard the tax benefits as the cream on the cake, and not the reason to invest. There are mixed views on the future of property and you will have to form your own opinion based on whatever research you can do. Be aware that the popularity of the location is one of the major factors that drive population growth. You could reduce your taxable income a little by salary-sacrificing up to a total of $25,000 in super but you will lose access until your preservation age and won't enjoy huge tax savings.
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20-7-2010

Question:

If after the age of60 I have two part-time jobs, one of which I have had for 20 years, and I resign from the other job that I have had for a much shorter time, would this satisfy the requirement to trigger a condition of release and hence allow me to access a lump sum payment from my super fund? I would like to retain the other part-time job.

Answer:

Yes, all you need to do is resign from a job - it need not be your main job.

Question:

I currently have a margin loan at 8.5 per cent I also have a mortgage redraw facility on my home loan at a much lower rate with enough to pay out my margin loan. If I was to do this, could I still claim the interest on the mortgage redraw as a tax deduction like I do with the margin loan?

Answer:

If you refinanced the margin loan with another loan the interest on that new loan will be tax deductible, but it's vital for tax purposes to keep your deductible loan separate from your non-deductible loan. Ask the bank to establish a new loan or split the existing one.

Question:

Can you please clarify the position regarding the tax treatment of gifts to a charitable organisation?

Answer:

The following contributions of property made in return for a right to attend or participate in a fundraising event may be deductible contributions. Property valued by the tax office at more than $5000 and not purchased during the 12 months before making the contribution, property valued at more than $150 and bought by the contributor during the 12 months before making the contribution, and shares acquired in a listed company that have a market value of$5000 or less, and were acquired at least 12 months before making the contribution. Where the eligible event is a fundraising auction, only contributions of money are eligible for a deduction.

Question:

My wife and I are both in our sixties and receive a small part pension. We have $550,000 in super in a cash fund. As we are of pension age, Centrelink is treating this super as an asset for pension assessment. We are using the cash fund option because we're both in poor health. Our super fund's cash option pays about 2.5 per cent - less than an equivalent bank term deposit. Our super fund's financial adviser has told us that to offset this lower return, our super returns are tax exempt. However, the tax office has advised us that for a combined return of (say) 6 per cent on $550,000, we'd pay no tax due to the impact of the Seniors Tax Offset for which we're eligible. We're puzzled by the advice and can see no benefit to staying in super rather than using bank term deposits. We can withdraw our entire super without penalty - our super fund doesn't have exit fees. What are your views?

Answer:

The only purpose of super is to save tax. Based on the information you have provided, you would pay no tax if you withdraw all your funds from super and invested them in your own names outside of super, and I can see no reason why you would be adversely affected if you did that. If you had other assets you haven't disclosed, it may be a different  matter.

Question:

Is there any chance that the Government will increase the preservation age to meet the age pension age?

Answer:

I can't see this happening because the money you have in super is not counted by Centrelink until you reach pensionable age, which is progressively being raised to 67. It would be absurd if there were a situation where a 66-year-old who could not find work was forced on benefits because they could not access their $l million in super.

Question:

I am single, do not own a home and have no shares. What’s in the proposed Henry review changes for me?

Answer:

You will end up with more money in super as a result of the increased employer contribution, but it is important you also put money aside. The main danger for people now is living longer than their money.