Noel Whittaker's  Questions & Answers - page 57 10-11-09 Question: When I turn 55, can I access my superannuation and use it to invest in a business that will generate an income for me? Answer: To access your super as a lump sum once you reach 55, you need to sign a statement that you intend to retire permanently. Of course, retirement is a state of mind so you can retire, withdraw part of your, super, and then rejoin the workforce in a different role. Or you can start a transition to retirement pension without retiring which would give you an income stream. Question: We are using a line of credit to buy and renovate two properties - our principal place of residence, and a rental property. The credit facility has two separate accounts attached to it, one for each property. The line of credit differs from a straight mortgage because we use our redraw to finance the renovations on both properties. If the principal place of residence were to become a rental property, would the fact that we have drawn/paid down and then drawn down again for renovation of this property disqualify us from claiming interest on the balance of the account against the rental income? Answer: It is important to keep the two accounts strictly separate. While you are living in a property, you cannot claim a tax deduction for the interest on money borrowed to do renovations to it but if you move out and rent it, you are then able to claim all outgoings including interest on the loan. Interest on money borrowed to renovate the rental property is deductible immediately. Question: We have just sold a block of Land and have $250,000 in the bank and no debt. We don't want to put money into super and bank interest is quite low. Are there other investment options that could provide us with more growth? We have been burnt before by investing in shares. Answer: You really have only two options - interest-bearing investments or growth investments like property and shares. Your best strategy depends on your timeframe because you should not place money in growth investments unless you are prepared to have a seven to 10-year time frame. If your term is shorter it would be sensible to stick with interest-bearing deposits -even if the return is low your money will be safe. Question: I have received a $9000 tax refund, due in part to no return on rental investment property this year. I am 50, work part-time and my only debts are three tax-deductible, interest-only investment loans. I don't have a large super fund but I am salary sacrificing $400 a week. Should I put the tax refund into my super, pay some off the investment loans, or upgrade my ageing auto? Answer: You are already contributing a hefty amount to super, and paying $9000 off your tax-deductible investment loans will only reduce your tax benefits. I suggest YOU upgrade your car. As well as giving you enjoyment, it may also save substantially on repair bills. Question: Does an investor have to pay a premium for the shares in companies involved in different lines of business, as diversification provides benefits for investors? Answer: It would depend on the company, because diversification has paid off for some companies, but has caused problems for others who have overextended themselves into areas outside their field of expertise. I suggest your primary focus should be on the long-term prospects of any individual stock. Question: I am a single female and will soon turn 60. I have a self-managed super fund of $365,000 invested at 3.8 per cent in a term deposit, and a small superannuation fund with Sunsuper of about $1200 (it was only started in February). I earn $38,000 gross. My home loan, which started in April this year, is $200,000 at a variable rate of 5.25 per cent. I would love to retire at 60, but it looks like I will need to work until 65 or so. Retiring at 62 and cashing in my self-managed super to pay off the home loan will leave me very little super to live off. I have about $36,000 in the bank. Should I pay this off the loan or invest it in super? Answer: By all means reduce the home loan because this will give you a much better return than the taxable 3.8 per cent you are earning within your super fund. Your present super will pay out the home loan when you retire so all you can do between now and then is to pay as much off your loan as possible. There is no advantage in salary sacrificing more than $3000 a year because a contribution of this amount could reduce your taxable income to $35,000 - the point where the 15 per cent rate cuts out. Don't forget to make a non-concessional contribution of at least $1000 to qualify for a part-government co-contribution. Question: Could you clarify my ability to make use of capital losses in future years. I have an investment in a managed fund that is to be terminated by the managers. Due to this termination I will realise about $10,000 in capital losses. As I will not be making any capital gains this year, or in the next few years, can I make use of this capital loss in later years? Is there any expiry on their use? Answer: There is no time frame for the utilisation of capital losses but the real value of the money is eroded by inflation over time. Be aware that some managed funds distribute a hefty proportion of their profits via taxable capital gains each year. If you find one of these you may be able to use up the losses faster than you think. Question: Having recently paid off our mortgage, we are for the first time in a long while in a position to save or invest funds that we normally would have for mortgage payments. Trying to improve our financial position, we would like to invest in the share market to diversify our assets. What type of loan would you recommend in this case - principal and interest or interest-only, and why? Answer: I prefer an interest-only loan because the tax benefits do not diminish over time, but if you do decide on this course of action make sure you salary sacrifice extra money into your superannuation to boost the balance so you will be able to pay off the loan upon your retirement. If you are under 45, insurance bonds may be a better option than superannuation because you do not lose access. The only drawback to this is that the money invested in insurance bonds must come from your after-tax income. Question: I have a hypothetical question. A colleague has said any large cash gifts made to relatives and friends from a win such as lotto are to be taxed. lf this is so, would it be the giver or the beneficiary have to pay the tax? Another colleague says a way around this is to lodge a syndicate list of all the potential beneficiaries so all are considered winners. Answer: There is no gift tax in Australia so people are free to make gifts to each other without falling foul of the tax office. Also, there is no tax on windfall receipts such as lottery wins, so feel free to invest in the way that is most convenient for you. Question: Centrelink mentions that income for a Commonwealth Seniors Health Card must now include any financial losses for the year - previously not asked. The limit of $80,000 of taxable income still applies to couples. What happens if a couple are hit with an emergency and have to urgently sell their share portfolio with a loss of $21,000? Taxable income is $60,000. Add the $21,000 loss to make $81,000 and they lose the card. With our medical needs, the card is a godsend for our expensive medicine. As a volunteer bus driver, my health is my prime consideration. ls my interpretation correct? Answer: You seem to be getting confused between capital losses and net investment losses. Adjusted taxable income for the health card includes taxable income, foreign income, total net investment losses due to rental property or investments, employer provided benefits and reportable superannuation contributions. A net loss from an investment occurs when the expenses of owning that investment exceed the income from it, as happens if you are negative gearing a rental property. You should have no fears about losing the card. --------------------------------------------------------------------------------------------------------------------------------------------------------- 29-11-09: Question: My wife and I both work part-time and plan to retire in two to three years. We own two investment properties valued at $700,000 with one paid off and the second with a loan of $195,000. We also owe $130,000 on our home. I would like to clear the debt on our home by using some of my super. Two years-ago I withdrew $140,000 from my super to pay for renovations to one property and to buy the second. The remaining $50,000 is in an offset account to reduce interest on our loan. What would be the most tax-effective way of withdrawing some of my super (about $80,000) to payoff our home loan? Answer: Unless you are 65, you cannot make large lump-sum withdrawals from super unless you can satisfy the trigger-of-release conditions. But you can start a transition to retirement pension and take part of your superannuation as an income stream which would help you with the loan repayments. If you are 60 or over, the income will be tax-free for you. Question: I bought a home in 1972 with my wife as joint tenants. My wife died in 2001 and the title was transferred into my name alone. I live in another property as my principal dwelling. I would appreciate it if you clarify if the house bought in 1972 is exempt from capital gains tax? Answer: The property would be deemed to have passed to you at its market value on the date of your wife's death in2001 .lf the property was always rented out you will be liable for capital gains tax on any increase in value since that date. Question: We are paying 9.25 per cent interest on our reverse mortgage loan. ls there anything we can do about this? lnterest rates have dropped quite a lot, but our loan is fixed. We are pensioners and are not very finance savvy. Answer: lf you have a fixed rate it will be extremely difficult to move away from it. Just bear in mind that interest rates are on the rise and you can sleep soundly at night knowing that any increases cannot make your situation any worse. Question: Will I have enough super to live on? Do you think if a person owns their own home and has no debts, he/she would be able to manage on the pension?  Answer: Whether you can live on the pension comfortably depends on your spending habits. Therefore it would be worth while to do a budget based on your expected retirement spending to work it out for yourself. Just be aware there are strategies available that enable a person in the workforce now to boost their superannuation. 0bviously, the earlier you start your super top-ups, the more savings you will be able to accumulate. --------------------------------------------------------------------------------------------------------------------------------------------------------- Back to: HOME   Back to: Finance    Back to: Whittaker (56)   Forward to: Whittaker (58)