Ask Noel – Thursday, 26 November 2020

Question

I’m reading your new book Retirement Made Simple and hope you can clarify something I’m confused about. I thought, irrespective of whether you are  income tested or asset tested,  you could only earn $300 a fortnight as a pensioner couple . We will be asset tested and I have worked out using your superannuation calculators that I will probably have about $600,000 in super. Given those circumstances, can we earn more than $300 a fortnight without our part pension being affected.

Answer

You have highlighted an issue which confuses many people. The pension eligibility tests work on an asset test and an income test and the one that produces the lowest pension is the one that Centrelink uses. From 1 July 2020 a couple can earn $316 a fortnight combined and still be eligible for the full pension under the income test. Once income exceeds this level the pension reduces by $0.50 for every additional dollar earned. The tests are way out of kilter – the lower limit for a homeowner couple for the assets test is $401,500 after which the rate reduces by $1.50 a fortnight each for each $1000 of assets in excess of that threshold.

If we assume your assessable assets are $640,000, which includes your financial assets and items such as vehicles and furniture, you would be eligible for a pension of $708 a fortnight combined. You could earn a combined income of $1800 a fortnight, and still be assessed under the assets test. In short, the income test is not relevant for anybody who is asset tested.


Question

I am 51, single, and earn $200,000 gross a year.  I currently rent, and rent out my home interstate, which is worth $500,000 with a $200,000 mortgage.  I am considering selling this house and buying a flat on the Gold Coast for my retirement in 5 to 10 years.  I have $300,000 cash and $300,000 equity on my house available for investment. 

I want to invest in shares via index funds but am concerned about the changing government super laws and integrity of my defined benefit company super fund.  Should I invest in shares outside super with an equity loan and/or make additional after tax cash contributions to super?  My super is worth $500,000 and I make the maximum concessional contributions.  Should I consider a SMSF or fund not associated with my employer?

Answer

I suggest you use the best of both worlds. Continue to salary sacrifice to the maximum but keep increasing your net worth by borrowing for assets in your own name to keep them outside the superannuation system. There are advantages and disadvantages in having your own fund – they are canvassed in detail on the ASIC Money Smart website. A SMSF could be useful if you intend to be an active do it yourself share investor.


Question

I am 60 and am working full time.   My super balance is $460,000 We have sold an investment property for$950,000. The purchase price was $130,000. how do I reduce my capital gain tax bill using superannuation?

Answer

This is a warning to anybody to take advice before signing a contract where a substantial amount of CGT may be payable. The only way to use superannuation to reduce capital gains tax is to make concessional contributions to reduce your taxable income in the year the sales contract was signed. The problem is that total concessional contributions from all sources cannot exceed $25,000 a person a year. You use the term “we” so I assume the house was in joint names. Therefore, the gain will be calculated by subtracting the base cost from the net sale price. On the figures provided, your total gain may be around $780,000 which will be split in half by application of the 50% discount. This means $195,000 will be added to the taxable income of both parties to calculate the CGT. I assume your employer is making compulsory contributions for you. If these are $10,000 a year, you only have $15,000 left to make a concessional contribution in your own name – possibly the joint owner could contribute $25,000 if they had no other superannuation. Obviously tax deductible contributions won’t too much to reduce your CGT.


Question

If I salary sacrifice a large sum of money, can I use this as a lump sum when I retire?  Does the money which my employer puts into super have to be used as an account-based pension?  Once I have sacrificed money to super is it out of my control or could I request a large sum in one hit, for example the cost of a new car, above my agreed allocated pension sum in one year?

Answer

Under the current rules you can take all your superannuation as a lump sum once you reach your preservation age and/or satisfy a condition of release if you are under 65.  Therefore, there is no reason why you couldn’t make lump sum withdrawals as needed when the time comes.

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