By: Noel Whittaker
I have executed a binding nomination in my super fund. Can you please advise me if my three children will still have to pay tax on the money from my super fund or any other money left to them in my will.
A binding nomination has no effect on the tax treatment of money left to beneficiaries – it simply instructs the trustee of your superannuation fund who the money is to be paid to. There is tax payable at 15 per cent plus Medicare levy on the taxable component of superannuation left to a non-dependent. A spouse is always regarded as a dependent.
There would be no tax to pay on cash left to beneficiaries, but for growth assets like property and shares the capital gains tax liability is not triggered on death – it is simply passed on to the beneficiaries who will pay tax if and when they dispose of the assets.
I retired two years ago aged 60 after being made redundant and found myself unable to find employment. I am currently taking an income stream pension from my superannuation fund, which currently is worth $470,000.
My wife is a nurse, still works part time and contributes to Hesta Super. Her current balance is about $75,000. When she retires, sometime in the next three years, can we combine our superannuation balances and draw a single pension?
You cannot have a joint superannuation account but providing your wife has reached her preservation age when she retires, the entire balance could be withdrawn tax-free and, depending on your other assets, could be used to fund your living expenses. This could be just as effective as holding the money inside super.
What’s your opinion on seeking foreign currency loans for investment properties?
They can be extremely high risk because you are introducing an extra element of uncertainty into your financial affairs – the risk of currency fluctuations. For example, if you borrowed in Swiss francs and that currency appreciated 10 per cent against the Australian dollar, you would find yourself owing 10 per cent more than you started with. My preference is to borrow in the same currency as your income – this gives you an inbuilt safety buffer.
I’m a 28-year-old renter who has $200 a month left over to invest. Any suggestions?
If you don’t commit the money it will be frittered away therefore I suggest you have it automatically deducted from your pay and credited to an online savings account as are offered by the major banks. Once the balance reaches $2000 talk to an adviser about starting a regular gearing plan whereby you invest $200 a month into a quality share trust and this is matched by $400 of borrowed money. It mightn’t sound much but if you had started in January 2000 and invested in a fund which matched the All Ordinaries Accumulation Index you would now have a portfolio worth about $233,000. You would have invested $40,400 and your loan would now be $76,800 on which the interest would be a tax deductible $100 a week. There is no contracted investment sum which means you could stop any time you wished.
My husband earns $160,000 a year and I earn $110,000 a year. We have a $620,000 mortgage on a property worth $860,000. We are both 31 and will be considering starting a family soon. We have $75,000 in our offset account, with a further $30,000 in shares. In addition to our monthly mortgage repayments we contribute $70,000 per year to our offset account. Should we continue to build our savings in our offset or look to invest further in the share market.
You should be trying to minimise your non-deductible debt while maximising your deductible debt. Therefore, if capital gains tax is not going to make a big hole in your share proceeds the best option might be to sell the shares to reduce your present mortgage and then borrow back for more shares. The interest on this loan would be hundred per cent tax-deductible. It’s a good strategy to keep building up the offset account – it provides maximum flexibility if you have a change of heart and decide to buy a new home while renting out the old one.
I have read about the re-contribution strategy as a means of reducing the tax on superannuation death benefits left to a non-dependent. The advice is that we should withdraw our taxable component and re-contribute it as a tax-free component.
I have been told that we cannot choose which component we wish to withdraw and that any withdrawal must be in the same ratio of taxable to non-taxable components comprising the total super balance. So in the case of someone who has already contributed a large non-concessional amount and thus have a high ratio of the non-taxable component, I just cannot see how the re-contribution strategy works in practice. Am I missing something here?
Keep in mind that the non-taxable component of your fund does not grow, earnings are added to the taxable component except for when the account is completely tax free from inception. Given that withdrawals are tax-free once you reach 60, and there is no entry tax on non-concessional contributions there will always be an advantage in making withdrawals and re-contributing them. But yes, it does dilute the strategy if you have mixed up your components initially.
Consider having a separate account or even fund to recontribute the proceeds back to. That way you isolate the tax-free amounts, they stay that way indefinitely and you can use this to your advantage in a well-considered estate plan i.e. leaving tax-free funds to non-dependants and taxable amounts to SIS dependants who don’t pay tax regardless. This is complex and you should be seeking advice from both an adviser and solicitor. Also, keep in mind that there is doubt about the caps on non-concessional contributions until the Coalition clarifies its position.
Source: Sydney Morning Herald
