Noel Whittaker's  Questions & Answers - page 56 10-10-09: Question: I have received conflicting advice from different sources on the correct treatment of the 'untaxed element' of a superannuation lump sum. I am between 55 and 60 years of age and have retired. I am going to withdraw an amount of $145,000, which under the proportioning rule will comprise: tax free $60,000, taxed $70,000 and untaxed $15,000. One adviser said the untaxed amount would be tax free as the withdrawal was below the tax-free limit, another said it would be subject to tax of 15 per cent plus 1.5 per cent Medicare Levy. Which is correct? Answer: The $145,000 tax-free threshold has recently been indexed to $150,000 and relates only to the taxed taxable component of a super withdrawal before age 60. The untaxed amount (from which contributions and earnings tax have not been paid) will attract 15 per cent tax plus the Medicare Levy of 1.5 per cent on rollover or withdrawal up to $150.000. Amounts in excess of $150,000 are taxed at 30 per cent plus the Medicare levy. Question: Am I able to deposit up to $500,000 of capital gains from a sale of a property if l am a sole trader consulting for one company only and working about 20 to 40 hours a month? I am 64 years of age. Answer: As you are under 65 you can contribute to super, working or, not, but you should understand that non-concessional contributions are limited to $150,000 a year and concessional contributions to $50,000 a year. Fortunately, as you are only 64, you can bring forward three years non-concessional contributions and contribute $450,000 in one go. The tone of your question indicates to me that you are trying to reduce capital gains tax. If that is the case be aware that only $50,000 can be claimed as a tax deduction Question: I'm 31, work full-time and earn $60,000. How much super should I have at this stage of my life? I fear I may be behind the eight-ball a bit. Answer: It is never too late to start and certainly at age 31 you have a long investment time frame. Because of your young age and possible law changes over the next 30 years, I suggest you rely on your employer for super at this stage and build wealth outside the superannuation system. It may be worthwhile talking to an adviser now to put a long-term plan in place. Question: Super at 67 years old - what sort of incentive is that? I am only 29 years old and over the past four years I have been progressively increasing my super contributions via salary sacrifice by 1 per cent a year. I currently contribute an additional 4 per cent of my gross salary on top of my employer's compulsory 9 per cent. I was planning to increase the total to 15 per cent by the time I am 31. My idea was by starting young I would, at the minimum, be able to retire at 65 with a nicer nest egg, or by chance I might be able to retire earlier. Enter a negative change in government policy! Let's think outside the square a bit here. Increasing the age for super access to 67 makes me feel like stopping my additional contributions altogether! Answer: There has been no change to the legislation regarding access to super. For a person your age it remains at age 60 but of course it is quite possible that this could be changed in the next 20 years. The age 67 to which you refer is the age at which younger, people will now be eligible to qualify for an aged pension. Question: My wife has a tax-free allocated pension as her sole source of income. We are both aged over 60. Our accountant has advised us that my wife's pension income precludes me from claiming the spouse tax offset, which is worth about $2100 a year. Should we roll her superannuation account into an allocated pension held in my name? Answer: From July 1, 2009, the definition of income used for the dependency tax offset is adjusted taxable income. This is defined as taxable income plus reportable employer super contributions, net investment losses, target foreign income, adjusted reportable fringe benefits and tax-free government pensions and benefits. Allocated pension income for someone who is 60 years of age or over is not covered by the above definition, and so it will not affect the dependant tax offset. Question: I read your recent article about investing for children with interest. Could you please advise me if managed funds are still obtaining 10 per cent annual growth (and interest), and provide some direction on where I would find information regarding these funds? Answer: The calculations in question were based on data from the All Ordinaries Accumulation Index, which includes income and growth, and are correct for the period given. Just bear in mind that all share-based investments can have positive and negative years. This is why it is important for investors to be in there for the long haul and not panic and sell out of their portfolio when the inevitable downturn comes, as we have experienced in the past two years. Question: We have an investment property which gives us a net return of $7600 a year. If we sell it, we will net $220,000 after capital gains tax. Our last tax return indicated a tax rate of about 21.7 per cent. Is it better for us to keep the property, or sell it and invest in a term deposit at 4.9 percent? Answer: The tax rate of 21.7 per cent you quote is the average rate. The CGT will be calculated by adding the net gain to your taxable incomes, so it is your marginal rate which should be used - not the average one. Your accountant is the best person to do the numbers for you but the main factor in your decision is the property's potential. If you feel it has peaked, now may be a good time to sell. Keep in mind that growth assets such as property and shares should give better long-term returns and tax benefits than bank accounts. -------------------------------------------------------------------------------------------------------------------------------------------------------- 22-10-09 Question: I understand the capital gains tax exemption can be claimed on the principal place of residence for up to six years after you stop living in it. However, the state land tax can be very significant if the property is rented out for more than six months in a year. Are there any other factors to consider? Answer: As you say, land tax can be a heavy impost. The family home is only exempt if it is an owner-occupied dwelling. Remember that land tax is tax deductible. Question: My superannuation fund takes $455.87 a year for life insurance. I do not wish to have life insurance but my fund says all super funds have obligatory life insurance. Is this true? I would rather the $455.87 go into my super. Answer: Not all funds have obligatory life insurance but some do. I suggest you talk to the trustee of your fund and see if they are prepared to comply with a request from you to cancel the life insurance. Question: I am 61 years of age, single, and have a 23-year-old child. I have just retired by taking a voluntary redundancy. The benefits from the pension fund (CSS) include a defined, indexed pension of approximately $50,000 per annum, and a lump sum of $200,000 plus, which I will roll over to another superannuation fund, because it cannot be left in CSS and I do not need to access it at this stage. The pension will be my only source of income. I have been advised to withdraw the whole lump sum amount for one day after it is rolled over to my super, and then put it all back again. What are the benefits of doing this? What are the tax implications? Will I have to pay tax when I put it back? Will this action affect the tax applicable to future deposits to and withdrawals from the Lump sum? How would all this be affected if I engaged occasionally in paid contract employment not exceeding $5000 per annum? Answer: As you are over 60 you can withdraw the money tax free, and as you are under 65 you can contribute to super without passing the work test. By withdrawing the money and re-contributing it, it all becomes non-taxable in the fund and thus is free from any exit tax if you die and the superannuation is left to a non-dependant. There is no restriction on working after your redundancy. Question: I have heard a few people mention that once you have lived in your principal place of residence for seven consecutive years the property becomes exempt from capital gains tax and you can rent it out. Can you clarify whether this is true? Answer: Unfortunately this is only a half-truth. Your own home is always free of capital gains tax but as a concession to those who are required to live elsewhere there is a provision in the Tax Act that allows you to be absent from your principal residence for up to six years without losing the CGT exemption provided you do not claim any other property as your principal residence in that time. Question: In a recent article with regard to superannuation, you said, "once you reach 60, you can make withdrawals tax free as needed or leave the balance for as long as you wish''. I've always understood that withdrawals are tax free, but this reads like you can make withdrawals as needed if you are over 60. Is this correct? Answer: Once you reach 55 the first $150,000 of the taxable component can be withdrawn tax-free and once you reach 60 all withdrawals are tax free. Until you reach 65 you need to trigger a condition of release to be eligible to withdraw from your super. -------------------------------------------------------------------------------------------------------------------------------------------------------- Back to: HOME     Back to: Finance      Back to: Whittaker (55)     Forward to: Whittaker (57)