Noel Whittaker's  Questions & Answers - page 58 11-12-09: Question: I bought my first home with help from the First Home Owner Grant. I plan to live in the property for six to 12 months and then rent it. If I intend to sell this house, how long until I would be exempt from CGT? Answer: Provided you live in the property before you rent it out you can be absent 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. If you do not fulfil these conditions, or fail to return to the property within six years, you will be liable for CGT on any increase in value from the day you rented it out. Question: We are in our mid-50s and hope to retire in five to eight years. We will have adequate super but are looking at other options now to boost our assets. My husband's salary is $130,000 and mine is $50,000. We own our home and have $60,000 in a bank account. We are thinking of salary sacrificing a large amount of my husband's salary into his super or buying an investment property. We need to keep some cash as we have three children expected to marry. If we buy a property, is it best to borrow the whole amount to obtain the best negative gearing returns? With capital gains tax, is it best to keep an investment property until after we retire and, if so, how Long would we need to keep it for the lowest CGT cost? We know nothing about shares and are not looking at that option. Answer: An interest-only loan for the entire purchase price is a good option because this will maximise your negative gearing benefits and this should be easily achieved if you offer the bank a mortgage over your existing home as well. You should certainly aim to keep the property until after you retire when you will be on lower incomes, and provided the present superannuation laws do not change you may also find it possible to make tax-deductible contributions to super to mitigate any CGT if you sell the house after you retire but before you turn 65. I am concerned that you are not considering shares, as long term they are more likely to give better returns than residential property. If you know nothing about them, you can always choose an index fund that will move in line with the market without any input on your part. Question: If a person retires with a million dollars to invest for, say, three years at 7 per cent, this would pay interest at maturity of $210,000, but the tax bill on this amount would be a disadvantage. I am not a fan of shares or super. What else is there? Answer: If you are not a fan of super, you need to take advice to get a better understanding of it. Superannuation is not an asset class like property or shares but merely a vehicle that lets you hold money in a low-tax area. Such a hypothetical person could have $1 million in super that could be wholly invested in cash if that was their decision. Once they started an allocated pension from that fund, all the earnings from the fund would be tax free and, provided they were at least 60 years of age, the pension they are drawing from it would be tax free, too. Question: I am putting money aside for the education of my young grandson, I started by putting $5000 on a six-month term deposit and now have $15,500. lt is my intention to try to increase the amount invested. I am 70 years old and draw an allocated pension which does not attract tax, However the interest on the term deposit is taxable so it would appear that an investment bond would be more tax effective. lf it is, which financial institutions sell them? Furthermore, it is my understanding that if the investment is in my grandson's name or he is specified as the beneficiary, then the investment will not be part of my estate. Answer: A major benefit of investment bonds is that you can choose a share-based option and thus put yourself in the position where the long-term return should be higher than what you would have if the money was left in the term deposit. Also, you have the flexibility to move between various options without capital gains tax if you take a view that the market is too high or too low. Yes, the bond will not form part of your estate and cannot be challenged when you die. An adviser will help you choose an appropriate bond. Question: My husband and I have recently sold an investment property and will have to pay approximately $40,000 capital gains tax in our tax return in2009-10. Could we reduce this if we paid our profit into my husband's super, or how much can we put into his super to offset the CGT? Answer: Provided you are under 65 you could contribute to super without passing the work test, but you could not claim a tax deduction if an employer is paying super for you. Your financial adviser can do the numbers and advise if you are eligible to contribute to super and claim a tax deduction. Question: We have been running a self-managed super fund with an allocated pension that earns' only $40,000 a year. lf we closed the fund down, how much can we earn as a couple with non-super funds and not pay tax? We're not paying any tax, but it's relatively complicated and there are costs running the super fund. Answer: The Senior Australians Tax Offset allows a couple of pensionable age to earn $25,680 a year each without paying tax. Therefore, if your fund is only generating $40,000 a year it may be feasible for you to close down your super fund and keep the money outside the system. Just make sure you fully understand all the implications before withdrawing your money, because at present you can buy and sell assets within your fund free of capital gains tax. You will not be able to do this if you take the money out of superannuation. Furthermore, depending on your total level of assets, the move could also jeopardise part of your Centrelink benefits. Question: With rates on the way up I thought l would help out my son with his mortgage. I would like to put my money into his offset account, but I would like to know if there was any way to protect myself in the way of a solicitor's letter or something like that, if he got sued or a girlfriend tried to run off with it in the event of a break-up. What do you advise? Answer: The simple way out is to make an interest-free loan to him and then he can put it in the offset account himself. Your solicitor should be able to draw-up a short document that will ensure that repayment of the loan gets priority if there is a breakdown in the relationship. Question: My husband is 52 years old and I am 45. We have been looking into the feasibility of starting a self-managed superfund. We think it will work well for us, given our financial goals and the strategy we have worked out, but need to talk to a financial adviser who has experience in this area. Ls there a way to find someone who specialises in this? Answer: Most financial advisers will be able to direct you to a firm that specialises in administering self -managed super funds. However, before you go to the expense of starting your own fund, you need to be certain as to your reasons for doing so. You would need at least $200,000 to make choosing the investments yourself, or by having an adviser recommend appropriate managed funds for your SMSF to invest in. You may possibly find it is better to use a wrap account or a master trust unless you are experienced investors who wish to deal in direct shares. Question: I am 39 and a few months ago my husband, 48, passed away. He had insurance of $25,000 and very little super which I have used to pay out bills. I have paid the insurance money into my mortgage, which brings my mortgage to $270,000. My repayments I have kept the same, at $376 a week. I have a six-year-old daughter and with our weekly expenses we'll just get by. Would it be good to try to take my superannuation (which is$38,000) out on hardship or compassionate grounds and put it into my home loan and try to pay that off quicker? Answer: To withdraw your super prior to your preservation age, you would need to establish genuine hardship and one of the conditions is that you have been on Centrelink benefits for at least 39 weeks. Based on the information supplied you would not be eligible. You should try to increase your payments a little bit, even if it is a struggle, because $376 a week is barely covering your interest and your loan could start going backwards if rates rise. Question: We are looking to buy our first home which will be an investment property. We have personal debt of about $40,000 that we want to combine into the home loan. Is this possible, as I understand some lenders won't combine personal debt into a home loan? Answer: It is up to the lender to decide whether they will allow your personal debt to be joined with your home loan, but in the current tough lending climate I doubt that you will qualify for a home loan unless you have at least a $40,000 deposit. Unless you have other cash you haven't mentioned you may be better to wait until you can save a deposit and pay the personal loan off as well. --------------------------------------------------------------------------------------------------------------------------------------------------------- 16-12-09: Question: We are 31 and 35 with a combined income of $150,000 and recently bought our first property and have $495,000 owing on it. We also have $25,000 in an online savings account. Would we be better off buying another smaller investment property, or putting the excess money into our current mortgage? Answer: lf you are living in the property your best option may be to deposit your ongoing savings into an offset account. This will reduce the interest on that non-deductible debt but at the same time will leave you with maximum flexibility if you wish to move to a different residence and rent the original place out. You have a relatively high mortgage on your first home so I suggest you defer plans to buy until you have a smaller debt. Question: l'm 60 and retired - can I use part of my super to build a new house and after completion sell our current house and contribute the same amount back into super? Also, I have half owner- ship in an investment property and wish to do a related party transfer of the title to my son without any exchange of money. I know I will be up for $50,000 in capital gains tax after allowing the 50 per cent for co-ownership and government allowance. Currently I have no other income but can I use my savings contributed to super to reduce the tax burden? Answer: As you have reached 60 and are retired, you have unlimited access to your super so can make any withdrawals you deem necessary, tax free. You can also make contributions until your 65th birthday but keep in mind that non-concessional contributions are limited to $150,000 a year. Provided no employer has paid super for you in the current financial year, you can make a tax deductible contribution of up to $50,000 which may help to mitigate your CGT bill. Question: I know that super funds are only allowed to provide "advice" within closely defined limits, but l was upset that my fund was not able to explain why their Australian fixed interest option has performed so poorly this year, after some excellent returns in 2008. I have since transferred to a better option, but would still like to know what caused the massive and ongoing drop. Answer: lf your fund has not performed as you had hoped you are certain[y entitled to persist until you get an answer. I suggest you make another request to the fund and if this does not produce a satisfactory answer write a personal letter to the CEO of the fund. -------------------------------------------------------------------------------------------------------------------------------------------------------- Back to: HOME      Back to: Finance      Back to: Whittaker (57)     Forward to: Whittaker (59)