EVERYONE LOVES A TAX BREAK
My accountant told me I would receive a $1600 tax return from my self-managed super fund (SMSF). However, after paying $50 for the annual audit, and his hefty bill, I will receive only $10. My fund is not complex, just real estate investment, but no shares. Can you do the tax return for your own SMSF, and is there any software you would recommend?
I don’t know of any software that does tax returns for superannuation funds, but I do know there are huge penalties for getting it wrong. If you think your accountant is overcharging, you could always ask other accountants or super fund administrators for quotes to do similar work.
If I buy shares in a company that offers a dividend reinvestment option, how will this affect my tax returns each year? Will I still be slugged for earning dividends even though I don’t receive a payment, or is the tax rate different because the dividends are being reinvested?
The taxation liability is created when the dividend is paid. It does not matter whether you take the dividend in cash or whether you choose to reinvest it. There is no difference to the rate of tax applicable, but you could take solace in the knowledge that franked dividends are very lightly taxed, if at all.
After reading an answer in one of your columns, I am confused about the cost base for shares that pass from a deceased estate to a beneficiary. Is it correct that there are three possibilities – the original cost base at date of purchase by the deceased; or the value of the shares on the date of death of the purchaser; or the value of the shares on the date that the shares are registered in the name of the beneficiary.
If the shares were acquired before the introduction of capital gains tax (CGT) on September 20 1985, they will be deemed to be acquired by the beneficiaries at their market value at date of death. If they were acquired after September 1985, the beneficiary takes over the cost base of the deceased. For example, if the deceased had bought shares in XYZ Ltd in January 2012 for $50,000, the beneficiary would be deemed to have acquired them on that date for that price.
I have received an inheritance of $100,000 that I wish to eventually put into my home mortgage portfolio loan, however the mortgage is in a fixed account until the middle of next year. Can I park the money in my two investment loans until the fixed loan finishes, then transfer the funds into my home mortgage without affecting the negative-gearing aspect of my investment loans?
All loans are in the same portfolio account with my home being the security for all loans. The investments are pretty close to being positively geared.
If you deposit the money into the investment accounts, it will be regarded as a repayment of the principal and you would lose tax deductibility if the funds were then withdrawn and used for a private purpose, such as paying off your own home mortgage. Your best strategy is to leave the money in the bank until your mortgage comes off fixed rates, unfortunately you will pay the tax on the earnings.
My wife and I retired eight years ago and moved into a city apartment that had been my investment property for two years. We have not sold or rented our old house, which is jointly owned and predates the introduction of CGT. Will retaining the old house prevent me from claiming a pro-rata 80 per cent discount of the capital gain on sale of the apartment? If the discount is allowed, will this affect the CGT-free status of the old house?
The original house will remain a CGT-exempt asset, even when it is rented out as it was bought before September 20, 1985. The fact that you own that property should not adversely affect the capital gains treatment of the apartment.
I have a pension fund and an accumulation fund, and from time to time I top up the pension account from the accumulation account. To do this I have to close the pension account, merge the funds back into the accumulation account and then start the pension account again. The money in the accumulation account was built up from concessional contributions when I was working and now from occasional non-concessional contributions, in accordance with the caps for each contribution type.
Are there any tax implications or superannuation cap implications associated with the procedure outlined above regarding adding new money to the pension account from time to time?
The process may be unwieldy but it is all completely legal. You might want to consider the taxable and tax-free components that denominate your super and pension balances. These have different implications for your estate and when you consolidate them to a singular pension account they combine proportionately. Speak to an adviser about potentially isolating tax-free components in separate pension accounts.
Published in the Sydney Morning Herald here.