Noel Whittaker's  Questions & Answers - page 48 22-1-09: Question: I am turning 55 this month. I understand I can have all my salary deposited into my superannuation from which I can then draw money as required. Under the current world financial crisis do you still recommend this strategy? Answer: You are talking about a transition to retirement pension (TTR) where you salary-sacrifice much of your salary into super and make up for the shortfall in your pay packet by starting to withdraw an income-stream TTR from your superannuation. As the TTR is a type of allocated pension your super fund will become a tax-free allocated pension fund and so will produce higher after-tax returns. Your adviser will be able to help you set up the TTR. Bear in mind the TTR will be taxed at your full marginal rate, less a 15 per cent rebate until you turn 60 when it will be tax-free. Question: I have been following with interest your recent articles on the costs of terminating a fixed rate home loan. Can you please tell me where I can find more information about what to do? Answer: Go to the Banking Ombudsman website (www.fos.org.au) and look under Latest Publications. You will find there, under Hot Topics, a three-page fact sheet with a wealth of information. Question: I have a super fund account in conservative option. If I switch all of it to cash, will all the whole amount be transferred or will I lose some of it that has been put in other portions of the fund? Answer: There would normally be no switching fees to move between various options within your fund. But you should be aware that even the conservative option will be partly invested in shares and accordingly, the balance will fluctuate. This means you will be throwing yourself on the mercy of the market because if you switch on a good day the balance will be up but on a bad day it will be down. I suggest you talk to your adviser to make sure you clearly understand what is involved in moving to the cash option. Question: We are retired, and due to age and disabilities, are unable to earn in the future. All of our superannuation is invested in a large industry super fund at medium risk. In recent weeks our balance has plummeted by 20 per cent. Should we do something or leave it and hope and wait? Answer: The months of October/ November have been particularly bad for share markets throughout the world, which means it has been a bad time for superannuation funds, too. You have been through what we hope is the worst of it so I suggest you are better off to stay in there and await the inevitable recovery rather than cash out now and turn a paper loss into a real one. Question: With reference to interest rates falling, is it a good opportunity to fix a sizeable proportion of our home loan which is around $330,000? Answer: There are forecasts that the cash rate will fall to under 3 per cent by April and there are no indications that rates will rise quickly when the cycle turns. Therefore I would not be in a hurry to fix my interest rate. Question: When interest rates were going up at the start of the year we locked in at 8.25 per cent on an investment loan of $153,000. We can break the loan and go on to a variable rate at 6.24 per cent, but the fee is $16,000. The property is rented at $400 a week and the rent pays the mortgage. Should we break and go variable or stay on the fixed rate which is for another four years? Answer: You will almost certainly find the break costs will be at least as much as you would save by moving to a variable rate. You can take some consolation in that the interest is tax-deductible, as this is an investment loan, and therefore the Tax Office is paying part of it. --------------------------------------------------------------------------------------------------------------------------------------------------------- 18-2-09: Question: I have been salary sacrificing $2700 a month into a balanced fund with Australian superannuation. With the current downward slide of share-based funds should I, for the time being, contribute the $2700 into a capital guaranteed fund to avoid loss? Answer: The great benefit of monthly contributions is that you are practising dollar cost averaging which should enable you to boost your profits when the market eventually recovers. My preference would be to leave things as they are but if you are particularly nervous you could certainly move to the capital guaranteed area to stop any further losses. If you are nervous a better option may be to move the entire balance to the capital guaranteed area but continue to place your monthly contributions into the balanced area. Question: At 17 years can you hold shares outright or do they have to be held in trust for you? Answer: The investor will need to be 18 to hold shares in their own name but the parent can hold them as trustee for the child. Once the child reaches 18 they can be transferred into the child's name without capital gains tax. Question: I recently sold a block of land and the bank took a majority of the proceeds to finance my homeloan. I was left with $6000 after bank, solicitor's and agent's fees etc. Do I only pay capital gains on the $6000, or the actual difference between purchase price and sale price? Answer: You will pay capital gains tax on the difference between the net sale price and the adjusted purchase price - the disbursement of the proceeds has no effect on the tax you will pay. If the property was bought after August 20, 1991, you can take into account expenditure such as rates, maintenance and interest. Your accountant will be able to do the sums for you. Question: I owe $50,000 on personal loans and credit cards. I am employed, but I am very stretched financially. I have calculated that if I went on a strict budget with no money set aside for savings, it would take me five years to pay back my current debts. I have $48,000 in superannuation, entirely contributed from employer contributions. I have read the conditions for withdrawing super and I do not fit the category. However, if I was able to withdraw my super, and pay off my debts in full, by saving purely that money which is going on to debts now, I would have saved $90,000 in five years. Is it possible to still put a case forward for withdrawal of my preserved super and have it reviewed? I really need to get out of my current situation and the only alternative I can see is bankruptcy, something I do not want to do if at all possible. Answer: There is another alternative - talk to a financial counsellor about making an arrangement with your creditors. This will enable you to rule off the slate and start again so the outcome is similar to bankruptcy but much milder. The good people at Lifeline will be able to point you in the right direction. Question: I have a 28-year-old son on a disability pension who lives in public housing and will probably never be able to work again. He has a small amount of super-annuation from earlier years. If I leave him money in my will he might lose his pension and housing benefits. Can I contribute to his super fund as a way of making provision for his later years? Answer: You can give him money which he can contribute to super but it will be inaccessible until he reaches his preservation age - this is at least 30 years away. This may not be a drawback in the light of what you are proposing and a major benefit is that money in super cannot be accessed by creditors if he gets into financial strife. You should also talk to your solicitor about including a testarnentary trust provision in your will. I assume you hold an enduring power of attorney from him. Question: I am 40 years old and have had to refinance my house for legal costs. My house is valued at $370,000 with $162,000 owing to the bank. I am a single mother of two and only earn $30,000 a year. Half my income goes in mortgage repayments. Would it be better to sell my house and rent, while investing my money elsewhere, or should I continue with my current mortgage repayments? The cost of rent and my mortgage repayments are the same but my mortgage won't be paid off until I turn 70. Answer: The problem with selling your house is that you will lose a big chunk of your capital in costs and may well find it impossible to buy again. The reduction in interest rates should make it easier for you to cope. Even if it does take until age 70 to pay it off you will at least have a substantial asset at that time, and in need could fund your retirement through the use of a reverse mortgage. I strongly suggest you hold it. Question: I have a friend who has recently been diagnosed with breast cancer, and within a matter of months has under- gone a mastectomy and her first pulse of chemotherapy. She is a single mother with an eight-year-old daughter and receives no financial support from the child's father. She has now exhausted her sick pay, is unable to work and, because she has assets in excess of $160,000 - a rental property which earns $350 a week gross - has been told she is ineligible for any Centrelink support. She is reluctant to sell her rental property, on which there is no debt, to realise the associated capital. She does, however, owe about $20,000 on her residential mortgage. Is it possible to transfer the existing debt from her residential property to her rental property and also increase the mortgage to improve her cash flow? Answer: Your friend can transfer the existing debt from her residential property to her rental property but there is no tax benefit in doing so - any loan taken out against the investment property for this purpose will be considered as non-tax deductible because it is for a private purpose. Any other loans for private expenses such as living would also be non-deductible. An option may be to borrow to invest in income-producing assets. These would provide her with an income and the interest would be tax deductible but when the calculations are done she may find that the exercise is not worth it. Question: My wife and I are considering setting up some form of investment for our grand- children. Are share-based insurance bonds the best option? Answer: There are a range of options available but I believe share-based insurance bonds are the best. Because the earnings accrue in the form of bonuses there is nothing to declare on anybody's tax return each year and after 10 years they can be cashed in free of tax in whole or in part or left to grow. Furthermore, at an appropriate time they can be transferred to the grandchild free of capital gains tax. Question: I am a self-funded retiree. I do not receive any benefits from Centrelink. I would like to help my family by giving a money gift to them. How much can I gift to an individual before becoming eligible to pay tax? Answer: There is no gift tax in Australia so you can gift away as much as you wish. If you have to cash in assets to find the cash for the gifts you could be liable for capital gains tax. --------------------------------------------------------------------------------------------------------------------------------------------------------- Back to: HOME     Back to: Finance      Back to: Whittaker (47)    Forward to: Whittaker (49)