I'm 62 and hope to retire in July. For the next few months, can I salary sacrifice 100 per cent of my income into my wife's super since she has already retired? The plan was to save on tax and live off our savings. Any advice would be appreciated.
You cannot salary sacrifice directly to your wife's super fund. However, once a year, if the trustee of your fund agrees, you can transfer 85 per cent of your concessional contributions into your wife's super fund, as long as she is under 65. If she is 55 to 64, she must declare that she is not permanently retired from the workplace at the time of the contribution split. Take advice before salary sacrificing your entire income because your employer should be paying 9 per cent for you and total concessional contributions from all sources cannot exceed the $50,000 cap for the 2011-12 financial year. Confirm with your employer that your contract allows you to salary sacrifice and bear in mind that the first $6000 of your income is tax-free and the next $31,000 is taxed at 15 per cent concessional contributions to super lose a 15 per cent entry tax.
I have a $378,000 mortgage on my home, which is worth $440,000. I have $10,000 in a regular bank account and $5000 in my mortgage offset account. I would like to buy a car for $10,000. Also, I would like to use the equity on my home to buy an investment property in the near future. What are my options to buy a car and still have enough equity to buy an investment property?
You should be trying to maximise your deductible debt and minimise your non-deductible debt. Therefore, think about paying cash for the car with the money you have and borrowing for the investment property using the equity you have in your house as additional deposit. If you don't have enough equity at this stage, you will need to defer the additional purchase until you have reduced your home loan.
My mortgage is paid off, I have $60,000 in super and $10,000 in savings. My salary is $45,000 a year. What would be the best option for saving for my retirement as I plan to work for another 15 years?
You should be forming a relationship with an adviser, which should enable you to decide exactly when you want to retire and how much you will need when you do. The adviser should be able to suggest strategies to help you get there, which may include salary sacrificing to super and/or some small conservative borrowing.
I have been paying into a British endowment mortgage. It is finishing next year and I want to transfer the money from Britain to put on my existing mortgage. Would I have to pay tax on it?
You would certainly pay no tax on the proceeds in Australia but you should make enquiries as to what tax you would pay in Britain. To the best of my knowledge, these policies are redeemed tax free, but the fund issuer should be able to confirm this for you.
What is the position regarding the 16.5 per cent death tax if the proceeds of superannuation are left to a testamentary trust?
The commissioner would look through the estate and identify the ultimate beneficiary. If the beneficiary is a non-dependant for tax purposes, it is the duty of the executor of the estate to remit the 16.5 per cent tax to the Tax Office. If the beneficiaries are both dependants and non-dependants for tax purposes, the apportionment of the tax will depend on the type of trust. For example, if it is a fixed trust, it will clear what percentage of apportionment might occur in terms of apportioning the death benefits tax. If it is a discretionary trust, the commissioner will most likely view this as an amount that's wholly subject to tax as if it were being paid to a non-dependant. Unfortunately, the legislation is not clear on this. The onus is on the tax payer to demonstrate who the potential beneficiaries will be.
Advice is general readers should seek their own professional advice.
Contact noel.whittaker@whittaker macnaught.com.au. Follow him on Twitter: @noelwhittaker. Questions to: Ask Noel, Money, GPO Box 2571, Qld, 4000, or see moneymanager.com.au/ask-an-expert.
My wife and I are in our 60s and are self-funded retirees. We have a self-managed super fund which is in pension phase with sufficient capital to take over the housing loans of both our married daughters. The advantages would be beneficial for all parties as we would only charge the interest we can receive on the market and would be a saving of at least 1 per cent on their loan. Also it takes our money out of the dangerous financial climate where the government will only cover $250,000 per institution instead of the $1 million cover it had. We would have legal documents drawn up for protection. Can this be undertaken by a SMSF?
The rules prohibit members of a SMSF from lending and providing financial assistance to members and relatives of the SMSF therefore, it cannot be done. Bear in mind that bank depositors rank ahead of bank shareholders. For any Australian bank depositor to lose their money it would first be necessary for all the shares in that bank to become worthless. This is highly unlikely to happen.
Frequently Asked Questions about this Article…
Can I salary sacrifice 100% of my income into my wife’s superannuation?
No. You cannot direct salary sacrifice straight into your wife’s super fund. Once a year your fund’s trustee can agree to transfer up to 85% of your concessional (pre‑tax) contributions into your wife’s super if she is under 65. If she is 55–64 she must declare she is not permanently retired at the time of the split. Also check your employment contract (your employer should still be paying the 9% super guarantee) and get advice before sacrificing most or all of your income.
How does the concessional contributions cap affect salary sacrificing into super?
Total concessional contributions from all sources cannot exceed the concessional cap — the article notes a $50,000 cap for the 2011–12 financial year. Exceeding the cap can have tax implications. Concessional contributions are also subject to a 15% entry tax in super, so factor that into any salary sacrifice strategy and seek personalised advice.
Can I use the equity in my home to buy an investment property and still afford to buy a $10,000 car?
The article suggests maximising deductible debt and minimising non‑deductible debt. A common approach is to pay cash for the car using your savings (to avoid non‑deductible borrowing) and borrow against your home equity to finance the investment property. If you don’t have enough equity yet, you may need to defer buying the investment until you’ve reduced your home loan.
I’m mortgage‑free with $60,000 in super and $10,000 savings on a $45,000 salary — how should I save for retirement?
The article recommends building a relationship with a financial adviser who can model when you can retire and how much you’ll need. An adviser can suggest tailored strategies such as salary sacrificing to super and, if appropriate, some small conservative borrowing to help reach your retirement goals.
If my British endowment mortgage finishes and I bring the proceeds to Australia, will I have to pay tax here?
According to the article, you would not pay tax on the proceeds in Australia. However, you should check what tax (if any) applies in the UK — the policy issuer should be able to confirm whether the redemption is tax‑free in Britain.
How does the 16.5% death tax apply when superannuation is paid to a testamentary trust?
The tax office will look through the estate to identify the ultimate beneficiary. If the beneficiary is a non‑dependant for tax purposes, the executor must remit the 16.5% tax. If beneficiaries include both dependants and non‑dependants, the tax apportionment depends on the trust type — a fixed trust is clearer, while a discretionary trust may be treated as if paid to a non‑dependant. The legislation is not fully clear, so the onus is on the taxpayer to demonstrate potential beneficiaries.
Can a self‑managed super fund (SMSF) lend money to members or relatives to take over housing loans?
No. SMSF rules prohibit members from lending to or providing financial assistance to members and their relatives, so an SMSF cannot undertake that kind of loan arrangement with your daughters.
Are bank deposits safer than bank shares and should I worry about the government guarantee?
The article notes bank depositors rank ahead of bank shareholders in claims on a bank. For depositors to lose money, all a bank’s shares would have to become worthless — which is seen as highly unlikely. It also observes the government guarantee on deposits has been reduced (the article cites $250,000 per institution versus the earlier $1 million cover), so consider that when evaluating deposit safety.
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