Noel Whittaker's  Questions & Answers - page 49 1-3-09: Question: My wife and I are pensioners over 70 years of age. We receive a part-Australian pension as well as a part- Dutch pension. I also have an immediate annuity, which has still about nine -years to run. Two months ago we cashed in our allocated pension and put $120,000 of that in a fixed-term deposit. While that is OK for the time being, it may not be a good idea to leave it there indefinitely. Our financial adviser says I would be eligible to start another allocated pension fund if I work for 40 hours in any calendar month and make contributions to superannuation. Is there another investment avenue for us that is tax and Centrelink friendly? Answer: The main purpose of having money in superannuation is to save tax - there are no benefits from a Centrelink point of view once you reach pensionable age. You and your adviser will need to do the sums to calculate whether the income from your assets, and your annuity, is at a level where you could save tax by placing money in superannuation. Question: Is this a good time to be borrowing to buy a home to live in? Answer: There is an old saying it is never a bad time to make a good investment. Falling interest rates mean that mortgages are getting cheaper and the general gloom in the markets means that most assets are selling cheaply. Just take the time to research the market so you will know a bargain when you come across it. Question: I am 55 and paying tax at the highest marginal rate at the moment as my salary is more than $180,000. Should I still be salary sacrificing my current $1000 a week into my super account which is going backwards or would I be better off giving it to my partner, who is currently a full-time mother at home, to put into a 10 per cent term deposit? Answer: Because you are in the top tax bracket any monies earned in excess of $180,000 a year suffer a marginal tax rate of 46.5 per cent. However, any money salary sacrificed to superannuation loses just 15 per cent. Therefore I strongly recommend that you continue with your salary sacrifice program - you could always hold your salary sacrifice contributions in the cash type area if you are nervous about the market. Question: I have a fixed term deposit and an online savings account with my financial institution. I notice that the online account offers an interest rate significantly (currently 1.35 per cent) higher than the fixed term deposit. Given that the fixed deposit locks my money in, wouldn't I be better off putting all my cash into the online account, which offers the higher rate as well as giving me the flexibility to withdraw and add to at will? Answer: In a period of failing rates you are better to use term deposits as they enable you to lock in today's rate which may well be higher than what you could achieve in a month or two. Shop around to ensure you are always receiving the highest secure rate that is possible. --------------------------------------------------------------------------------------------------------------------------------------------------------- 16-3-09: Question: I have not worked this financial year to date, while my husband has. He is earning in the upper tax bracket and if I were to return to work I would be also. In the interim I have not been contributing to super and would like to understand if it would be worth our while to make a contribution to my super fund and, if so, when and how much? We have been living overseas until recently so are unaware of the current rules and regulations. Answer: The main benefit of contributing money to super is that you move it to an area where income tax is just 15 per cent a year - the price of doing this is loss of access until you reach your preservation age which will be at least 55. You should talk to a financial adviser to have a complete analysis of your whole situation done to better enable you to decide whether superannuation is appropriate for you at this time in your life. Question: Can you please explain the capital gains tax implications in Australia of selling a house in the UK whilst resident in Australia? I have friends who have a house in Australia which is the principal residence of the wife, and a house in the UK which is the principal residence of the husband - who still works mostly in Europe. The husband wants to sell the UK residence which is in his name and retire to Australia to be with his wife. They cannot sell the UK residence due to the real estate collapse there and are worried if the husband takes up residence in Australia before selling the UK house, and they sell in say, two or three years' time, they will face a heavy Australian CGT liability. Is this correct? Would the situation change if they elected to rent out the LIK residence for a couple of years? Answer: Once he becomes a resident of Australia for tax purposes the Australian tax authorities are entitled to tax any capital gains on the UK house when it is sold. However, this gain might not be much, because he is deemed to have acquired it at market value on the date he became a resident. Just be aware that he must hold the property for more than 12 months from the date of becoming a resident to qualify for the 50 per cent CGT discount. He could exempt it as his main residence after he arrives here but that would mean exposing the Australian house to CGT. Renting the UK residence for a couple of years would make no difference at all. Question: We have a 27 year $385,000 loan at 6.64 per cent fixed to March 31, 2011. When the interest rates were going up we enjoyed great savings, but now with the rates coming down we are wondering whether it would be worth our while paying an exit fee to break the loan and go variable. We are just not sure when would be the most financially beneficial time to do it. What we are trying to come up with is a formula to figure out the best time based on the cash rate, I tried the RBA but they weren't much help. Answer: Your bank should be able to help you with the numbers, but you will almost certainly discover that the cost to exit a fixed rate loan will be at least as much as the savings you would make if you switch to a variable rate. --------------------------------------------------------------------------------------------------------------------------------------------------------- 31-3-09: Question: I am 16 years old, have an occasional part-time job and am hoping to get a more permanent part-time job. I have a savings account but when I start more permanent work I was wondering if I should open a separate savings account to use for things I want to save for. Answer: I believe it is a smart move to have separate bank accounts, because you can then keep the money for each of your goals strictly separate. If it all goes into the one account you can quickly lose track of it. Just make sure you choose an account with minimal fees. Question: I am in my late 40s and earn above $150,000. I am about to take on a mortgage of $400,000 and am considering using an interest-only loan and salary sacrificing into super to fund the principal when I can access my super tax-free at 60. I am aware of the legislative risks but consider this a better strategy than trying to pay off a principal and interest loan in the same time frame. Do you agree? Answer: I certainly agree - you are in the 41.5 per cent bracket so money taken in hand loses 41.5 per cent, whereas salary sacrificed contributions to super lose just 15 per cent. A further benefit is that over the long term money you have in super should earn a higher rate than what you would pay on the housing loan. Question: My son and his girlfriend have a mortgage together. However, circumstances have changed and my son has decided to take over the mortgage repayments, and have her name removed from the mortgage documents. They have two more years remaining on a three-year fixed rate but are willing to wait two years before changing the paperwork. Can you tell me what is involved and how to go about this? Answer: Your bank will be able to guide you but you need to be aware that the bank may charge you exit fees if you try to change a fixed rate loan to a variable rate loan, or put the loan in someone else's name, if they are changing the mortgage I assume they are also removing the girlfriend's name from the title deed. This is something to discuss with your solicitor as there could be legal implications if the girlfriend feels she is entitled to a share of the property. Question: I am four years into a 25-year mortgage, of which $180,000 is owing. I have a three-year fixed rate that began in February 2008 at 8.29 per cent. My bank has quoted me about $15,000 to switch to a variable rate. Is it worth borrowing more to do this or should I continue as is? Answer: The exit fee is called a break cost and is charged by banks to compensate them for the loss of a loan that is now paying a higher rate of interest than the variable loans. You will almost certainly find that the break costs will be at least as much as you would save if you switched to a variable rate. --------------------------------------------------------------------------------------------------------------------------------------------------------- Back to: HOME       Back to: Finance       Back to: Whittaker (48)         Forward to: Whittaker (50)