Noel Whittaker's  Questions & Answers - page 41 26-7-08: Question: I am unable to get my head around how interest works on credit cards. I have a gold Visa with a 44-day interest free period - if I charge $25 on the first day of the month, $50 on the 15th and $100 on the 30th, do I have 44 days interest free for each separate charge? Answer: When the statement arrives you will notice that the entire balance must be paid by the due date - this is normally about 25 days from the date of the statement, therefore your total interest-free period will be 25 days plus the time that has elapsed from when you buy an item until the statement date. Question: I am 51 years old and earning $40,000 a year. I would like to retire at 55. I am renting and do not own a home, but I have $250,000 in managed funds and $1.1 million in super - with two different providers. Would it make sense to have an SMSF so that I can invest some funds in residential property which I can move into when I am 60 - given that the system favours owners of residential property when providing a pension? Answer: The pension system may favour homeowners, but if the property is owned by your superannuation fund, it will still be counted under the assets test. Your current assets would put you at a level where you would not be eligible for a pension, but if you bought a house in your own name you might well be able to put yourself in a position where you could qualify for at least a part-pension when you turn 65. The asset limits are higher for couples than for singles, so I suggest you take advice as soon as you can so you can put some long-term strategies in place. Question: I am living in a property that I bought almost three years ago with an interest-only fixed loan. The time to refinance is looming and I am faced with the prospect of selling or moving out and making it an investment property. Is there any way to predict the capital growth in that area? Answer: Capital growth is caused by demand, so you would need to research the area where your property is situated and try to find out if there is a strong demand for the location, and also for the type of property you own. Your local real estate agent will be able to guide you, but bear in mind you will receive income tax concessions if you make it a rental property and so it will not cost you so much to own it. --------------------------------------------------------------------------------------------------------------------------------------------------------- 5-8-08: Question: I am living in a property that I bought almost three years ago with an interest-only fixed loan. The time to refinance is looming and I am faced with the prospect of selling or moving out and making it an investment property. Is there any way to predict the capital growth in that area? Answer: Capital growth is caused by demand, so you would need to research the area where your property is situated and try to find out if there is a strong demand for the location, and also for the type of property you own. Your local real estate agent will be able to guide you, but bear in mind you will receive income tax concessions if you make it a rental property and so it will not cost you so much to own it. Question: I bought a block of land in my own name prior to my marriage. I want to sell the land and invest the money in our joint bank account. Is it possible for both my husband and I to split the gain so we each declare a percentage on our tax return so that we both stay below a certain tax bracket, even though the property to sell is in my name only? Answer: If the property is solely in your name you will be liable for 100 per cent of any capital gains tax. If the gain is not a large one you may be able to reduce the liability by salary sacrificing into superannuation as this will reduce your taxable income in the year of sale. The drawback is that money in superannuation is inaccessible until you reach your preservation age, which is at least 55. Question: I am 36, earning $130k yearly. My wife is working part time and earns $15k yearly. We have two children - one in childcare and one at school. We bought our new house worth $600k with an interest-only loan of $410k. Our monthly expenses after tax are about $5500. How can I lower my tax? Do I need to establish a family trust and pay a salary to my wife and kids? Do I buy an investment property? Answer: If you are working for an employer you cannot divert income through a family trust, but if you have your own business it may be possible to restructure it, after taking advice from your accountant, so that it works through a trust. You won't save much tax if you buy an investment property as the rental will tend to offset the interest. I suggest you take solace in the knowledge that the progressive reduction in the tax scales mean you are now in the 41.5 per cent bracket and not the 46.5 per cent bracket. Question: I have recently obtained $42,000 in an insurance claim. I am expecting another $20,000 soon from my father's estate. I am in a de facto relationship and we just had a child together. We are living in a mortgaged property owned by my partner. He has about $120,000 owing on this. It is in his name only. I am not sure what the best thing to do with this money. My partner would like me to put it all into the mortgage, but I have not had money before and hesitate to hand it all over to him and lose track of it. What's your advice? Answer: Putting the money into the mortgage would be the best use of it, as it would help you to get the house paid off much quicker. Perhaps you could discuss the possibility of you buying a share of the house from him. It may be worthwhile having a quick chat to a solicitor - the relationship you have should give you rights to a share of the family assets if you split up. --------------------------------------------------------------------------------------------------------------------------------------------------------- 11-8-09: Question: It is my understanding that if an inherited property (not the residents of the deceased but an investment property) is sold within three months, there is no tax to pay. If this is correct my question is -there are two investment properties and they are left, (one property each) to two sisters ... is there any reason they could not sell their individual property to each other and thus avoid tax and keep the properties? Answer: If the property was a pre-CGT asset, or was the deceased's residence, you would have two years from date of death to sell it tax free. If the property carried a CGT liability, that liability will transfer to the beneficiary on death. Question: You recently stated that "any money you use to reduce the loans on investment properties will return you about 4 per cent after tax". Can you please elaborate for me? Answer: Because interest on investment loans is tax deductible, the Government is effectively paying part of it at your marginal tax rate. For example, if a person in the 46.5 per cent tax bracket paid $9000 interest on a $100,000 loan, the Government would pay $4162.50 of it and the investor would pay $4837.50. A non-deductible housing loan gets no support from the Government, which is why it is vital to keep your deductible loans on an interest- only basis until your non deductible loans are paid off. Question: My home loan is about to convert to variable - their going rate is 9.5 per cent and fixed rate is 9.71 per cent. We owe $92,000 and are paying $516 in interest and $704 in repayments. With today's cost of living, the change- over from the fixed rate of 6.95 to 9.71 1 feel that the added pressure is going to be too much. My income is $38,000 a year without overtime and my wife's is around $25,000 a year though she has to pay as she goes. Should we wear the cost out of terminating the loan to get a better rate or do you have any better suggestions on keeping the cost down? Answer: If your loan is about to convert from fixed to variable, there should be minimal termination fees. But, if there are termination fees, you usually find they are at least as much as what you would save by paying you would save by paying out the loan and refinancing at a cheaper rate. You should take some comfort in the knowledge that it is generally believed that we are at the top of the interest rate cycle and rates should move down slowly or at least stay where they are. --------------------------------------------------------------------------------------------------------------------------------------------------------- Back to: HOME       Back to: Finance       Back to: Whittaker (40)        Forward to: Whittaker (42)