By: George Cochrane
Regarding your response to a reader a few weeks ago, K.E. on January 28, about investing $20,000 into superannuation accounts for each of his children. I have two questions relating to that proposal:
1. I was surprised that the writer’s children, aged three and five, could have super accounts opened for them. I thought you needed to be employed and/or earning an income before you were allowed to own a super account. At the ages of three and five it seems to me unlikely they would meet this criteria.
2. Ditto for the $20,000 voluntary contribution and subsequent contributions. I thought the super account owner needed to be working before voluntary contributions could be paid into their account. I.B.
Not quite. A super fund can accept contributions for any individual under age 65 without a restrictive work test.
In the case of children, any other person can make a non-concessional contribution (NCC) for a child who remains under 18 at the end of the financial year, provided it is not made by their employer, (see section 295.170 of the 1997 Tax Act) but this is not eligible for the government co-contribution. However, such a contributor, e.g. a parent or grandparent, cannot make a concessional (deductible) contribution unless they are also the child’s employer.
This is an exception to the rule that, except with a spouse contribution, a NCC must be made personally by the fund member, otherwise it is treated as a concessional contribution and taxed. For example, if a parent contributes to an adult child’s account, it is treated as a concessional contribution and taxed 15 per cent, even if the parent did not intend to, and cannot, claim a deduction.
Can children under 18 make a deductible, i.e. concessional, contribution? The answer is yes, providing they have earned income that year from carrying on a business, or worked and been treated as an employee for the purposes of the Superannuation Guarantee (compulsory super). However, under 18s (and also private or domestic workers, such as nannies), must work for more than 30 hours a week to qualify for the 9.5 per cent SG payment.
Children who meet these work requirements can also make a personal NCC and may receive a co-contribution if their earnings are within the usual thresholds. Both types of contributions, including third-party NCCs, are subject to the usual caps of $25,000 and $100,000.
While these are all legal, you are correct in that some funds impose restrictions on minors opening superannuation accounts, unless they carry out some form of work or employment. This is because under 18s cannot, by law, sign contracts and thus, if an argument arose, need not be legally subject to the fund’s trust deed. However, if the employee is a member of an employer’s plan, he or she would be deemed to have accepted the terms of the fund. Quite often, a minimum age is not mentioned in the fund’s product disclosure statement.
If you remember, I advised against the idea. Children have many other priorities as they mature into adults, such as education, travel, buying a car and a property, etc. I suspect that, unless the family is very well to do, planning for a child’s retirement is simply a step too far.
I am receiving a disability pension of $879 a fortnight. I own my apartment, which I purchased for $435,000 in early 2016. In order to free up some equity I am considering selling my apartment. Also to not have to pay the body corporate fees of $3200 a year. Would I be able to retain my full pension? If I rented, would I be eligible for rental allowance? I am 63 years old. K.H.
If you were to sell your apartment, you would be classified as a non-homeowner under the assets test and your pension would begin to reduce with assets of $456,750, for a single person, and cut out at $755,000, the latter figure being indexed up from March 20.
Rent assistance is never huge and pays a maximum of $133 a fortnight ($66.50 a week) if your rent is above $295.93 a fortnight ($148 a week), reducing if you’re a sharer or a couple.
I have always been generally strongly against selling a fully owned home, even more so today when you look at the high level of rents in today’s property market. Your body corporate costs work out to $61.50 a week, which is low compared to rental costs.
Once you reach pension age, which I guess would be 66 based on a 1954 birthdate, you can apply for a loan from Centrelink’s pension loans scheme, which is in effect a low cost reverse equity mortgage and is available if you receive less than the maximum age pension. Since the maximum disability support pension is $894 a fortnight, and you are receiving $879, it sounds as though you would be eligible.
I have inherited some shares from my mother’s estate. They were purchased post 1985 CGT. My question is how are they valued going into the estate for probate purposes. G.J.
The shares would be valued as at the date of death. The cost base would include your mother’s cost base, i.e. the original cost, plus brokerage and any stamp duty paid if they were bought when such duty was charged, plus any legal and accounting costs in transferring the shares into your name.
A real problem, in many deceased estates, is finding the original purchase price. Good starting points are the broker’s records, CHESS certificates and share registrars.
Note that, while you inherit capital gains, net capital losses cannot be passed on to you as the beneficiary, i.e. you can’t use such losses to offset any capital gains. It’s not fair, really!
Source: The Sydney Morning Herald