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Noel Whittaker's Questions & Answers - page 50 14-4-09: Question: I am 62 years old, single, working four days a week earning $50,000 a year gross. I owe $70,000 on a $600,000 house and have about $26,000 in super. I have been told that I could salary sacrifice all my salary into my super and draw a pension to live on. That could be about the same amount as I currently clear - and this would be tax-free. I find it hard to understand the financial advice I get about this. Can you clarify? Answer: Your adviser is talking about a transition to retirement pension but I think you need to clarify the recommenda- tions. I see no point in salary sacrificing below $34,000 where the 15 per cent band cuts in but it would be useful to salary sacrifice $16,000 because this sum is currently subject to 31.5 per cent income tax. As you are over 60 all withdrawals from super are tax-free. If you ask the adviser to do the calculations the proposed strategy should become clear to you. Question: I currently have two properties - owner occupied and investment. The owner-occupied one was recently built and is valued at $800,000; the investment property is valued at $550,000. My total debts equate to $650,000. My wife and I both work and earn $70,000. We are considering selling our investment property to repay most of the debt and at the same time complete landscaping requirements to our newly built home. We are currently redrawing funds to complete the landscaping but by doing this we will never repay our debts. What do you think? Answer: Benjamin Franklin once said "a mortgage casts a shadow on the sunniest field". Based on the information supplied I agree that you may be better off to reduce your commitments and put yourself in a stronger position before borrowing again. Just make sure you check out what capital gains tax, if any, will be payable if you sell the investment property. Question: I bought my first home for $225,000 about two years ago. Last July I refinanced it and used the money to buy another house which is my primary residence now. Currently the loan amount for the first house is $262,000. Mid-year I am planning to sell this house. If I can only sell it for $262,000, do I need to pay CGT? Answer: Your accountant is the appropriate person to do the calculations but on the information supplied there would be minimal CGT payable. You have had the asset for over 12 months, so it would be eligible for a 50 per cent discount and as you have lived in it for more than half the time you have owned it, you would receive an additional discount based on your period of residency. This would be over 50 per cent. If we assume the base cost after allowing for buying expenses is $230,000 and the sale price is $255,000 net, the gross capital gain would be about $25,000. Therefore the amount to be included in your taxable income would be no more than $6000 after the various discounts are applied. Question: My wife, who is 64 years old, will inherit $100,000 next month. She currently receives about $470 a fortnight pension and has no other income. I am working part time, with all my wages salary sacrificed into super- annuation. Our combined assets currently total $311,600 with $38,000 in cash. My wife has a strong aversion to both shares and super. Apart from a high interest online savings account, what advice can you give to invest this inheritance so that it has minimal effect on her pension? Answer: If your wife has a strong aversion to both shares and super your lives may be more comfortable if you leave it in the high interest bank accounts even if it means lower long-term returns. To minimise the impact on her pension she could give away $10,000, invest in a prepaid funeral plan, or spend the money on items such as reno- vations or travel. Question: I have been offered free accommodation and want to know the best way to utilise the $350 a week I will save on rent. I have a block of land and pay holding costs of $516 a month, but have thought of buying another invest- ment property. My only outgoings are $516 for the land. I earn $60,000 and have a company car. Answer: It's important you commit it otherwise you will slowly but surely fritter it away. Paying off the loan on the land would be a good option because you will be steadily increasing your net worth and putting yourself in a position where you can borrow for investment when you have built up a substantial equity in the land. As the interest on the land cannot be claimed on your tax until you sell it, it is giving you no immediate tax breaks. Question: The flavour of the month appears to be the break fees the banks impose when people move from fixed interest loans to variable. We took out a five-year fixed rate loan which we may be able to pay out after three and a half years. The bank said we could pay up to $10,000 a year off the loan, which in fact we did once. Therefore the loan is going to be paid out early. Now they tell me that we will have to pay a $750 fee for the privilege. What can I do about this? Answer: You could discuss this with the bank and ask them to take a reasonable attitude. You should also investigate what would happen if you paid off most of the debt and just left a couple of dollars owing. if you can't get satisfaction you could make a complaint to the Banking Ombudsman. --------------------------------------------------------------------------------------------------------------------------------------------------------- 21-4-09: Question: I am 62 years old, single, working four days a week earning $50,000 a year gross. I owe $70,000 on a $600,000 house and have about $26,000 in super. I have been told that I could salary sacrifice all my salary into my super and draw a pension to live on. That could be about the same amount as I currently clear - and this would be tax-free. I find it hard to understand the financial advice I get about this. Can you clarify? Answer: Your adviser is talking about a transition to retirement pension but I think you need to clarify the recommend- ations. I see no point in salary sacrificing below $34,000 where the 15 per cent band cuts in but it would be useful to salary sacrifice $16,000 because this sum is currently subject to 31.5 per cent income tax. As you are over 60 all withdrawals from super are tax-free. If you ask the adviser to do the calculations the proposed strategy should become clear to you. Question: I currently have two properties - owner occupied and investment. The owner-occupied one was recently built and is valued at $800,000; the investment property is valued at $550,000. My total debts equate to $650,000. My wife and I both work and earn $70,000. We are considering selling our investment property to repay most of the debt and at the same time complete landscaping requirements to our newly built home. We are currently redrawing funds to complete the landscaping but by doing this we will never repay our debts. What do you think? Answer: Benjamin Franklin once said "a mortgage casts a shadow on the sunniest field". Based on the information supplied I agree that you may be better off to reduce your commitments and put yourself in a stronger position before borrowing again. Just make sure you check out what capital gains tax, if any, will be payable if you sell the investment property. Question: I bought my first home for $225,000 about two years ago. Last July I refinanced it and used the money to buy another house which is my primary residence now. Currently the loan amount for the first house is $262,000. Mid-year I am planning to sell this house. If I can only sell it for $262,000, do I need to pay CGT? Answer: Your accountant is the appropriate person to do the calculations but on the information supplied there would be minimal CGT payable. You have had the asset for over 12 months, so it would be eligible for a 50 per cent discount and as you have lived in it for more than half the time you have owned it, you would receive an additional discount based on your period of residency. This would be over 50 per cent. If we assume the base cost after allowing for buying expenses is $230,000 and the sale price is $255,000 net, the gross capital gain would be about $25,000. Therefore the amount to be included in your taxable income would be no more than $6000 after the various discounts are applied. Question: My wife, who is 64 years old, will inherit $100,000 next month. She currently receives about $470 a fortnight pension and has no other income. I am working part time, with all my wages salary sacrificed into superannuation. Our combined assets currently total $311,600 with $38,000 in cash. My wife has a strong aversion to both shares and super. Apart from a high interest online savings account, what advice can you give to invest this inheritance so that it has minimal effect on her pension? Answer: If your wife has a strong aversion to both shares and super your lives may be more comfortable if you leave it in the high interest bank accounts even if it means lower long-term returns. To minimise the impact on her pension she could give away $10,000, invest in a prepaid funeral plan, or spend the money on items such as renovations or travel. Question: I have been offered free accommodation and want to know the best way to utilise the $350 a week I will save on rent. I have a block of land and pay holding costs of $516 a month, but have thought of buying another investment property. My only outgoings are $516 for the land. I earn $60,000 and have a company car. Answer: It's important you commit it otherwise you will slowly but surely fritter it away. Paying off the loan on the land would be a good option because you will be steadily increasing your net worth and putting yourself in a position where you can borrow for investment when you have built up a substantial equity in the land. As the interest on the land cannot be claimed on your tax until you sell it, it is giving you no immediate tax breaks. Question: The flavour of the month appears to be the break fees the banks impose when people move from fixed interest loans to variable. We took out a five-year fixed rate loan which we may be able to pay out after three and a half years. The bank said we could pay up to $10,000 a year off the loan, which in fact we did once. Therefore the loan is going to be paid out early. Now they tell me that we will have to pay a $750 fee for the privilege. What can I do about this? Answer: You could discuss this with the bank and ask them to take a reasonable attitude. You should also investigate what would happen if you paid off most of the debt and just left a couple of dollars owing. if you can't get satisfaction you could make a complaint to the Banking Ombudsman. --------------------------------------------------------------------------------------------------------------------------------------------------------- Back to: HOME Back to: Finance Back to: Whittaker (49) Forward to: Whittaker (51) |