Noel Whittaker's  Questions & Answers - page 52 18-5-09: Question: I am a self-funded retiree with an investment portfolio of about $600,000. I draw a superannuation payment of $2000 per month plus an allocated pension. I have accumulated $50,000 in savings. I am 85 and reluctant to reinvest the funds into my portfolio. It has been suggested that I purchase gold or silver with the money. What do you think, and how I would go about buying gold or silver? Answer: You can buy the bullion direct through coin dealers but leave yourself open to theft and the cost of storage. A better option may be to talk to your broker about buying the Exchange Traded Fund Gold as this will give you the benefits and none of the drawbacks. Just bear in mind that opinion about the merits of buying gold is divided - wherever there is a chance of capital gain there is a chance of capital loss. Question: I have a home loan which I need to keep until November 2009 to avoid the differed establishment fees -it allows me to deposit additional funds and has a redraw facility but does not have an offset account. I'm up to the stage where I have quite a significant amount of redraw and would like to use these funds as a deposit for another investment property. Once I redraw the funds I will be paying more interest on the current property hence my deductions will increase. Is this going to be an issue with the tax office? Will they assess me on individual properties or will they look at it as a combined investment? Answer: The interest on a loan is tax deductible as long as the purpose of that loan is for investment. You can certainly redraw money from your housing loan for investment purposes but it's important for tax purposes to keep the investment portion strictly separate from the private portion. If your present loan is inflexible you could have the investment loan combined with the home loan but you would need to keep very detailed records of the apportionment of the interest. Question: I am married, 43, and have an income of $110,000pa. We have two rental properties with mortgages of $150,000 and $160,000 owing (with $150,000 available via a line of credit). Financially, is it better to payoff the balance of the first property using the credit available? This will increase the debt on the second property to $310,000. Another idea was to pay off the first property and transfer ownership to my wife, who is on a much lower income than I. I am aware that my wife will therefore have to declare the income for tax purposes and also claim the expenses. Answer: There is no financial benefit to be gained by amalgamating your loans unless you can achieve a lower overall rate of interest. If you draw down on your line of credit to eliminate the debt on the first property, and then dispose of it, you will no longer be able to claim interest on the $160,000 that was transferred to it, as you no longer own that property. Make sure you liaise with your accountant before transferring an asset to your spouse because there needs to be a reason besides tax minimisation to do it. In certain circumstances the reason may be that you wish to transfer assets to protect your asset position if you are sued. --------------------------------------------------------------------------------------------------------------------------------------------------------- 27-5-09: Question: I started putting $1000 a month into my super last July. Despite the downturn I continue to put the money in, reasoning if my shares are down 50 per cent then my money now buys two shares and when the recovery comes I will reap the benefits. Am I right in my assumption or should I lower my contributions? Answer: You are practising dollar cost averaging and your assumption is correct - when the market recovers your money should recover with it. Of course this is based on the premise that you are investing in a diversified parcel of quality shares that will tend to track the performance of the market. This is why it can be dangerous to dollar cost average into a single share because the company may go broke or the price may be very slow to recover. Question: I am 58 years old. I salary sacrifice more than 50 per cent of my salary into my super fund for the tax benefits, and also to build up my retirement fund. With my fund losing a lot of money lately, is it still wise for me to do this? I really do not know what to do. Answer: You are always better to salary sacrifice to superannuation because such contributions lose just 15 per cent whereas money taken in hand loses 31.5 per cent or more. The only drawback to salary sacrifice is lack of access, which is not a problem for someone of your age. Question: We want to buy a property for our two children to live in. The eldest is 16 years old. Are we better off waiting until she can claim a first-home owner's grant, or putting it in our name? Answer: The problem with putting the property in your name is that the children will lose the right to the first-home owner's grant and there will be transaction costs and possible capital gains tax when you transfer it to them in the future. Unless you see a boom in house prices in the next two years, which is probably most unlikely, you are probably better off to wait until the children turn 18 and let them buy in their own name. It may be necessary for you to guarantee the loan but that will still save the costs of transferring it to them if you bought it in yours. Question: My husband is 62 years of age and on a moderate salary. I am chronically ill and need private health cover. We have no spare cash for emergencies. Should my husband take out some of his superannuation, on a financial hardship claim, to lower the debt on our mortgage, which otherwise would not be paid off until 2032? Answer: Your husband will not be able to withdraw his superannuation before age 65, unless he satisfies a condition of release which is to resign from a job. It need not be his main job, so he could get a part-time job and then resign from that job at a time that he considers appropriate. Alternatively, he could talk to a financial adviser about starting a transition to retirement pension which will enable him to access up to 10 per cent of his superannuation balance as a tax-free income stream. Question: I am 46 years of age and have been self employed since 2002. I have superannuation from when I was an employee. I am never going to be an employee again and the money in my super would be better as working capital for my business. Is there any way of getting my money out of super and into my control? What should I be asking my super funds to see if there is a clause that allows me to withdraw the money? Answer: Unless you qualify under the hardship provisions, which is most unlikely, the only part of superannuation that can be withdrawn before you reach 55 and retire is "unrestricted non-preserved". Your fund will be able to advise you if you have any money in this area, but bear in mind there may be an exit tax of 21.5 per cent if you withdraw any money before age 55. Question: My wife and I sold our 8ha property last financial year, and will have to pay some capital gains on the non-home part of the sale. Can any of this be offset against our superannuation losses in the same year that resulted from the market downturn? Answer: The losses made by your superannuation fund can only be used by that fund which is a separate entity to you. They cannot be offset against your own personal profits. --------------------------------------------------------------------------------------------------------------------------------------------------------- 13-6-09: Question: Why can't I manage my super fund, so that I can get a return monthly and I can meet my expenditure without touching the capital? Answer: If you are eligible to access your superannuation there is no reason why you cannot make orderly withdrawals by way of an account-based pension. If you choose the minimum payment, which can be as little as 5 per cent if you are aged between 65 and 74, and your fund earns more than 4 per cent you will be achieving your goals, because your capital will be growing in an interest-free environment while you are enjoying a tax-free income from it. Question: Early last year we fixed our home loan for three years at 8.25 per cent. We also have an investment property which has remained at a variable rate. With the fall in interest rates recently our investment property is now positively geared. Is there a way of switching the rates between the properties so the higher fixed rate can be claimed for tax on the investment property and the lower variable rate on our home? Both mortgages are separate but with the same bank. Answer: Unfortunately you cannot rewrite history but to maximise your tax deductions you should have the loan on the investment property on an interest-only basis. This should free up resources to reduce the non-deductible debt on your home loan when your fixed-rate term expires. Some fixed-rate loans allow you to make small extra repayments of principal. Find out if your loan offers this facility. Question: Given the current downturn in super funds, is it still worth salary sacrificing to make extra contributions or am I better off with cash savings? I am 32 years old with $55,000 in super. I earn $90,000 a year and this year sacrificed $15,000 into super. My strategy for doing this was to reduce my tax liability, and to help prop up my super if I take a break from work to have children in the next few years. I have some savings but salary sacrificing has limited my ability to add to these. The savings are to go towards buying a house with my partner. Answer: While I am generally in favour of salary sacrificing to super it may not be the best strategy for you because you are losing access to your money for almost 30 years. A better option may be to rely on employer superannuation for the moment and take as much money as you can in your pay packet for eventual use as a house deposit. Question: I paid a deposit on some Kleenmaid appliances which were to be used in my investment property and have now lost my deposit because they have gone into liquidation. What is the tax position? Answer: The Kleenmaid deposit will be a capital loss that can only be offset against a capital gain. There will be no adjustment under the depreciation provisions because the items never arrived. Question: I have left my superannuation in the high growth option because I am reluctant to crystallise my losses by switching to, say, a cash option. I don't see much point in salary sacrificing into my high growth fund. However, I would be happy to salary sacrifice into a second fund with a cash option. Can I do this? Answer: You can salary sacrifice to any fund you wish but provided you can take a long-term view I would prefer that you salary sacrificed to a high growth fund because then you are practising the proven strategy of dollar cost averaging. When you use this strategy you are investing a set sum each month into the same asset class. You are able to buy more units when the price is low and this guarantees profits when the price eventually recovers. Question: I recently heard some information that with the latest printing of money in the US we will go through a reflation stage. This will mean the cost of home loans will go up. Do you believe this will happen in the near future, and would it be wise to fix part or all of our home loan with the lower interest rate? Answer: If the supply of money increases, and the amount of goods and services to be bought does not increase correspondingly, you will almost certainly have inflation. I agree that this is likely in the future but certainly not right now. This is why I believe you are better off to stay with a variable rate until there is a clear signal that we have reached the bottom of the interest rate cycle. Question: Upon reading Centrelink's website we are confused about the criteria regarding the Seniors Health Card. While we are paying ourselves an allocated pension from our self-managed super fund, does Centrelink take into account the total income derived from the superannuation fund or just the allocation pension paid to us? Answer: From July I the entire amount of money withdrawn each year from your super fund or your allocated pension will be treated as income for Commonwealth Seniors Health Card purposes. This includes lump sum withdrawals from super. Question: I am interested in the $12 per $1000 payment theory. Can you just clarify if it is based on the current outstanding balance or the original amount borrowed? Answer: $12 a thousand will repay a loan in about 10 years as long as rates stay between 5 per cent and 9 per cent - this is based on the balance when you start this level of repayment. For example, if you had a $200,000 loan the monthly repayments would be $2400 a month. If you reduced the payments as the balance reduced the loan would never be paid off. --------------------------------------------------------------------------------------------------------------------------------------------------------- Back to: HOME     Back to: Finance      Back to: Whittaker (51)      Forward to: Whittaker (53)