Ask Noel – Thursday, 26 November 2020


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.


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.


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?


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.


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?


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.


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?


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.

Ask Noel – Tuesday, 17 November 2020


I am 58 and my husband is 65.  We both work full time and salary sacrifice the maximum into super.  I earn $120,000 a year, and my husband earns $113,000 a year.  He has $470,000 in super and I have $450,000.  We still have a mortgage of $367,000 on our family home worth $1.6 million.  My husband hopes to retire at 70 in five years.  Are we better off paying down the mortgage over the next five years or making after tax contributions to super?


It’s great that you’re planning now to make the best of your retirement years. The interest rate on your mortgage should be no more than 3% per annum, and I would hope that the returns on your superannuation fund will be at least of  7% per annum. Therefore, I think you are perfectly placed to maximise your non-concessional contribution to superannuation. There is no entry tax on these contributions, and they also reduce the overall taxable component of your fund.

The concessional contributions you are making to super will be $21, 250 a year each after allowing for the 15% contributions tax. If your funds earn 7%  husband’s super should be worth around $780,000 when he retires at age 70. If you work to age 65 your superannuation should be worth $900,000. The non-concessional contributions will boost these numbers even more.


My wife and I retired  two years ago and we both took our defined benefits as income steams at that time. We are self-funded and currently over our preservation age but under 60.

Due to COVID, I started casual work as a contractor and work approximately three days a week through a skilled labour supplier. In this agreement, I am performing work for my original employer. We have also moved closer to my aged parents and sold our house. 
We are now looking at buying a new more expensive property. I was planning to take a cash lump sum superannuation  payment from my secondary accumulation fund, separate to the defined benefit. Will the  lump sum withdrawal meet the tax office rules considering my casual work?


Based on the information provided there may be an amount that can be withdrawn. Your first task is to get the latest statement from the fund that has the accumulation balance to see if there is any amount which is unpreserved from the old rules. This is unlikely and you will probably find that all your funds became unpreserved when you retired.

However, your fund may require you to satisfy them that you did actually retire, if you did not notify them at the time. Any contributions and earnings after you recommenced work will, in your case, be preserved until you satisfy a condition of release. In essence until you turn 60 you have to retire to access those amounts. Your partner may be in a different position. In short, there is no simple answer – you need to liaise with your fund to find out where you stand now.


My wife and I are in our mid 50’s and have about $500 a week each for investing.  Neither of us has much super – we are both reluctant to pour money into super.  What can we sink our money into that will give us the best return over the next ten years – super, an investment property, a property trust or syndicate, managed funds, blue chip shares, anything else?


There are two important factors to consider – the type of investment to hold and the best entity to hold it in.  For a person in their mid 50s earning more than $37,000 a year the perfect investment is super because you can usually invest in pre-tax dollars using salary sacrifice.  Because salary sacrificed contributions lose just 15% and money taken in hand loses at least 39% you are making big tax savings immediately.  Once the money is inside super you and your adviser can decide what sort of asset mix is appropriate for you. The cream on the cake is that income tax on the fund earnings is just 15% per annum while you are working – and then zero tax once you retire and start a pension from the fund.


I am 65 and will be  applying for my UK and Australian aged pensions on my next birthday in May. I left UK at aged 35 and have been advised I shall receive £80 per week from UK as part state pension.

In addition I receive a monthly pension for life from my former UK employer Nat West Bank £438. I only have $200,000 in Australian super. Will I have to pay Australian tax on my pensions?


The pension income will be taxable, but you will get a credit for tax paid in the UK as well as an 8% deduction for return on capital.  Also, thanks to the range of offsets available, you may find that zero tax will be payable on your overall income.

How will the new Commonwealth Health Card rules affect me?


Q. I have read recently of impending changes to Centrelink’s treatment of income streams and the Commonwealth Seniors Health Card from next January.

If I retired before age 65 and triggered an account-based income stream before January, would I be eligible for grandfathering provisions when I turn 65 after January 1 next year?

A. To be eligible for the grandfathering provisions, you have to be receiving support from Centrelink now. It’s important to liaise with your adviser to optimise your personal situation so make an appointment sooner rather than later.

Q. I am 61, my wife is 62 and we have a total of $500,000 in super. I work full-time and contribute the maximum of $35,000 into super pre-tax, including employer contributions. My wife works part-time and contributes the maximum into her fund pre-tax minus $18,000, which is tax-free.

I understand that on January 1, 2015 the law is changing on account-based pensions (ABP). Should we start an ABP – or transition to retirement pension in our case — before 31 December?

A. The new rules affect income-tested age pensioners only — based on the assets you have you should be unaffected by the time you reach pensionable age. The other issue is the CSHC. Under current rules you should not qualify for that as you should be getting a part age pension when you reach pensionable age. Bear in mind the rules could change in the next four years.

Q. I read your recent article regarding the changes to account-based pensions (ABP) from January 1 and would appreciate some clarification on the loss of a CSHC.

My wife is 80, I am 77. We already have an ABP, and both hold a CSHC. At present our combined income is well under $80,000, but early next year my wife will face a capital-gain event which will take our income above $80,000. As I understand the existing rules, this will result in the loss of the card for the remainder of the 2014/2015 financial year, but it will be reinstated for the following year when our income returns to less than $80,000.

Am I correct in saying the card will be reinstated when our income drops below $80,000, or under the new rules have we lost it permanently? We don’t receive any support payments from Centrelink.

A. If you lose the CSHC after 1 January 2014 because your adjusted taxable income exceeds the threshold, the account-based pension will lose ‘grandfathered status’. This means that when you subsequently re-apply for the CSHC, the income from the account-based pension will be the amount calculated under the deeming rules. Whether you subsequently qualify for the CSHC, will depend on whether the deemed income plus other income is below the relevant income threshold.

Q. My wife is 30, I am 37, and our combined income is $350,000 a year. We own outright a house worth $800,000, and have no other investments apart from combined super of $175,000 to which we salary sacrifice the maximum each year. We save $8000 each month.

To diversify our investments and take advantage of negative gearing, we plan to borrow and start a share portfolio. We understand the risks of a downturn in the share market, and our adviser suggests we use an interest-only loan. Should we use this to reduce our investment loan, or look at low-risk investments like an education bond for our son. People say that investing in the share market outperforms all other avenues in the long term, but is a reasonable expectation is to outperform the ASX?

A. I suggest you go to my website and have play with my Stock Exchange Calculator. This has stored data for the All Ordinaries Accumulation Index (which includes income as well as growth) from January 1980 till today. You can choose a starting and finishing date, invest a notional sum, and find out what it would be worth on your chosen end date. You can then model any scenarios you choose.

Q. On returning from a long holiday abroad we found our Commonwealth Seniors Health Cards had been cancelled. They were reinstated quite easily but in the light of the new rules, I wondered if having them cancelled in future would mean that the benefit of the grandfathering would be lost. If so, we would all need to restrict overseas travel to no more than six weeks. I would appreciate your thoughts.

A. The portability rules for the CSHC have been extended from six weeks to 19 weeks, which will allow longer periods of travel abroad. You are correct in saying that if the card is cancelled and not reinstated before 1 January 2015, your account based pension will no longer be grandfathered.


From The Sydney Morning Herald here:

Help! The deeming rules have me foxed


Q. Can you confirm that after 1/1/2015 occasional withdrawals of cash lump sums, and increasing or decreasing the annual pension payable from a superannuation account (account based) will not trigger the new deeming rules?

Some financial writers and my superannuation fund in particular, are saying that future cash withdrawals will constitute a product change and thus trigger the new deeming rules! Further, would changing the investment nature (i.e. cash to balanced) constitute a product change and therefore trigger the new deeming rules?

I am confused!!

A. Grandfathering arrangements for account-based income streams will not be affected by partial lump-sum withdrawals, increasing/decreasing annual payment amounts or changing the underlying investments of the income stream. To lose the grandfathering entitlement, the existing income stream must cease. This would generally occur when changing product providers or commencing a new income stream with the same provider.

Q. I am in my mid 50s and after a divorce, my funds don’t stretch far, so I would like to set up a SMSF to purchase a house then rent it back to myself. Is this possible?

A. There are restrictions in the superannuation law on SMSF purchasing a residential house and then leasing the house to the SMSF members. The law states that unless the value of the house is less than 5 per cent of the total value of assets in the SMSF, it cannot be done.

Q. I have a superannuation fund in pension mode and hold a CSHC. In the last few years I have had a part-time job and have contributed to super through my employer, together with non-concessional contributions. This fund is still in accumulation mode, but in mid 2015, I will retire and will need to move it into pension mode to supplement the income from my personal fund.

Can you advise whether converting the super to pension mode after January 1, 2015 will have an adverse effect on my entitlement to the CSHC, given that I already meet the grandfathering provisions through my personal fund.

A. The pension you start after January 1, 2015 would not qualify for Centrelink income-test concessions, but the existing one would. The fact that you meet the grandfathering test for the first one is irrelevant for the second one, and the second one would be assessed under the deeming rules to determine the amount of income assessed for CSHC purposes.

Q. I am 64 and manage my own SMSF. In order to deposit $400,000 from the sale of a property and an inheritance in the next few years, I wish to qualify for the work test. I have spoken to the ATO, and based on my understanding of their definition of gainful employment, I would like to count the management of my SMSF as gainful employment. I am sole director of the corporate trustee entity, and have begun to draw down funds from the SMSF as director’s fees for this purpose. I would appreciate your thoughts on this strategy.

A. What you propose does not qualify for the work test. To qualify for gainful employment, you would need to work 40 hours in 30 consecutive days. A member of an SMSF cannot pay themselves remuneration for managing their own fund — this would be in contravention of section 17B of the superannuation law. You may also be acting illegally by withdrawing funds from the SMSF to pay yourself a director’s fee from your company. This would amount to a contravention of the payment standards under the superannuation law.

I assume your company was established solely to act as the corporate trustee of your SMSF, and that it is not a trading company. If so you cannot pay yourself a director’s fee for managing your SMSF.

Q. My wife is 55 and I am 63. We have a rundown investment property within our SMSF that is expensive to maintain. We don’t want to sell the property and would like to demolish the existing building then build a new house. Are we allowed to do this within the SMSF if we have sufficient cash in the fund, and don’t have to borrow? If that is not permitted what are our options?

A. Superannuation expert Monica Rule says there are no restrictions on using money accumulated in an SMSF to demolish an existing property owned by an SMSF and build a new property. As members of your SMSF, you must ensure you hire an arm’s-length builder to do the work as you cannot pay yourselves to do the work unless you are qualified and licensed to do so, and provide building services to the general public through your business.

Q. I gave my daughter some money to pay off the mortgage on her home, and we then had the deeds transferred to my name. If we sold the property within 12 months would we have to pay capital gains tax?

A. If the property has been used as an investment property by you, there would certainly be capital gains tax to pay if the value has increased since the date of the transfer. It’s important to liaise with your accountant because acquisition costs, if any, will be taken into account and you’ll receive a 50 per centdiscount on any CGT payable provided you have held it for more than 12 months.

From The Sydney Morning Herald here:

Where should we stash property sale cash?


Q. My wife and I are about to sell an investment property before building a new home three years from now. We lived in the house for eight years and it has been rented for two years. We assume there will be some tax due on this property – is this correct?

We hope to receive $250,000 from the sale and would like to know the best option for holding this sum – a three-year term deposit seems the best option. We can also save an additional $800 each week.

A. If you lived in it after purchase and have not claimed any other home as your principal residence since you moved out, it should be CGT exempt, but if you are living in another property you own now, which you are treating as your principal residence, there will be CGT payable on any increase in value from when you moved out. Your accountant will be able to do the calculations for you. For a short term such as three years, bank deposits are the best option but you will need to take a view on where interest rates are going. If you fix your rate for three years, and then rates rise, you will lose out. It may be a good option to have some money on term deposit and some at call.

Q. In a recent column regarding superannuation when forecasting how much a person could have, your numbers appear to be based on the premise that there is no break in super payments once someone begins work, but many people won’t have received super all their working lives – especially older workers. In other cases, people have lost money when changing accounts or being charged administration fees.

A. Keep in mind my main message is to highlight the importance of starting as soon as possible, and ensuring the asset mix is appropriate. As you point out, every situation is different, which is why it’s important to have ongoing advice. Hopefully this will enable the people seeking this advice to avoid high exit fees or excessive administration fees.

Q. I will turn 65 mid January 2015, am retired, and my only income is $62,000 gross from shares. My husband is 73 and earns $27,000 gross from his share portfolio. Considering the superannuation changes from January 2015, what advice could you give to maximise my tax savings?

A. There are two major changes coming in January. The first concerns a different treatment of the pension income test and affects only income-tested pensioners – the second relates to eligibility for the CSHC. Based on the information supplied, neither would affect your situation.

Q. Some weeks ago in one of your columns, you answered a question about reverse mortgages and Centrelink pension payments. You wrote that progressive drawdowns do not affect the pension paid. Could you please explain this again for me?

A. If a pensioner borrowed say $100,000 by way of reverse mortgage, and placed that money in the bank, it could be subject to deeming and affect their pension. However, if the same person was approved for a loan of $100,000 and simply drew it as needed, there would be no adverse affect on the pension as there would be no large sum of money sitting in the bank. In any event, given the compounding nature of a reverse mortgage, it makes good sense to draw it down as slowly as possible.

Q. I own an investment unit that I’m thinking of selling, and after paying costs, passing the proceeds of it on to my husband’s daughter as a one-off payment towards her children’s education. I accept that once I make the gift, I would have no rights on how the money is spent, or to reclaiming any of it. I have researched this idea online and it seems fraught with problems. Is there a simple way of making such a gift that does not involve paying punitive taxes, or complicated trust management? Where should I start?

A. It may be simplest to give the money directly to your step daughter to use as she wishes – as you point out, there will be a liability for children’stax irrespective of whether the money is held as trustee or in the child’s name until the child reaches 18. An easy option may simply be to talk to an adviser about putting the money into investment bonds, about which I’ve written often in this paper.

Q. I bought a unit in March 2010 on a 25-year mortgage. I am planning to buy two units to rent out for one year, then move in to one of the units. Is it possible to buy the second units when I already have a mortgage? How much money will I need to service the debt? What is the best way to find a lender for the new mortgage?

A. You can certainly buy additional properties if you have the income and the assets to service the loan repayments. I suggest you talk to your bank or a mortgage broker sooner rather than later to canvas your options.

from The Sydney Morning Herald here:

Should I move my money into super?


Q I am 64 years old, earn $90,000 a year and salary sacrifice $2000 a month into super.  

I have $125,000 in an online bank account and also have shares to the value of $25,000.  Should I move my money from online banking into super or is it a case of getting on the train too late?

A You are at the perfect age to put money into super because you have no worries about lack of access.  Just keep in mind that once you reach 65 you will not be able to contribute unless you pass the work test – this involves working at least 40 hours in a year over 30 consecutive days.  The benefits of super are that earnings are taxed at just 15 per cent  and when you start the account-based pension the fund will be from a tax- free fund.

Q I am 67 and currently eligible for the CSHC.  I hold most of my money within a bank retirement savings account, pension mode, in a term deposit which matures in January 2015.  With interest rates at such a low level, my plan is to close the term deposit at maturity and move the funds into a superannuation accumulation account.

Considering the recent eligibility changes, I understand my CSHC should not be affected since I will not be establishing a new pension account, but keeping the money in accumulation mode.  I don’t intend to make regular withdrawals from this account but understand that I can withdraw any amount at any time if I need to.  I would appreciate your confirmation that my understanding of the rules is correct.  

A The technical team at OnePath advise that if you move your superannuation from pension phase to accumulation phase, it will not be assessable for the CSHC. For people over 60, lump sum withdrawals from super are not assessed as income, provided the withdrawal is from a taxed super fund. Note that the funds in pension phase would be exempt from earnings tax and CGT, however while they are in accumulation phase, tax of up to 15 per cent  may apply.

Q I am 63 and retired.  I have a mortgage of $1500 with a redraw of $146,000 available at 5.68 per cent; and my super fund consistently returns above 10 per cent a year tax free. I want to build a garage and do some landscaping which will cost $40,000.  Should I redraw on my mortgage or make a cash withdrawal from super to pay for it?  The increase in mortgage repayments can be covered within the pension I am receiving.

A  There is no easy answer, but my inclination is to leave your super intact, and draw down on your loan.  You have access to your super, so you could always make a withdrawal in the future to pay down the loan if circumstances warranted it.

Q  I am 50, retirement is looming, and I am concerned about retiring comfortably.  I am single, earn $65,000 a year, and my children still live at home.  I hold $125,000 in super, and in addition to employer contributions of 9.5 per cent, I salary sacrifice $85 each week.  I have a $240,000 mortgage on a home worth $450,000, but no other investments or savings.

Do you think I should sell my home, rent elsewhere, and invest the sale proceeds?  If so, what would be the best place to invest?

A  I’m not in favour of selling your home, because you’ll lose a hefty amount in transaction costs and will be faced with renting for the rest of your life.  I suggest you work as long as possible, while sacrificing as much as you can afford to super.  The purpose of doing this is to have enough money in super when you retire to pay the house off.  Try to work as long as you can because you will be ineligible for a pension until age 67.

Q  I am 26 and have $50,000 in savings earning 4 per cent interest.  My gross annual income is $85,000 and I have a HELP debt of $60,000 to which I make mandatory repayments of $350 a month.  I salary sacrifice 5 per cent of my income into super.  My partner has savings of $50,000, and we are looking at buying an investment property in Newcastle while we rent in Sydney.

I am keen to have a 20 per cent deposit to avoid mortgage insurance, but the lender we spoke to warned us about being too positively geared.  Surely we would want to avoid mortgage insurance over being positively geared?  Do you think my salary sacrifice payments would be better served making additional loan repayments?

A  I would be most concerned about a lender who is trying to dissuade you from having a positively geared property – it sounds like they’re trying to boost their own lending budget.  I also think that you are too young at age 26 to be salary sacrificing to super, as many rule changes are a certainty before you can access the money.  The key factor here is whether the property you intend to buy will rise in price while you are saving up 20 per cent deposit – obviously it would be pointless waiting if that waiting meant the increased price you would have to pay would be more than the mortgage insurance.  You are the only person who can decide whether a property is fairly priced and when is a good time to buy.

from The Sydney Morning Herald here:

Is super an issue if I go back to work?


Q I have been retired for a couple of years, and am thinking of getting some part-time work. We have $190,000 in our pension fund and own our home.

If I do get a job, would I be able to create another super account, put some of my earnings into it, and simply roll it over into my super account at some stage?

A You could certainly do that if you are under 75 and pass the work test, but ask your accountant to do the sums. Superannuation funds pay tax at 15 per cent a year on earnings from the first dollar – you may find that money held in your name is entirely tax-free.

Q In a recent article about pension changes, you said grandfathering rules will not apply to those who already have an allocated pension “if people change products”. Does this mean that if I currently have an allocated pension, but want to change my pension to another provider before January 1, 2015, I will lose the protection of the grandfathering rules, but will fall under the new rules applicable from January 1, 2015?

A The timing is critical, so I suggest you make any changes to your situation as early as possible. If you satisfy the following criteria immediately prior to January 1, 2015, the account-based pension will be grandfathered.

  • You have an account-based pension.
  • You receive a qualifying government income support payment.
  • You continue to receive a qualifying government income support payment.

If you change income stream providers, and the new income stream is commenced prior to January 1, 2015, and the additional criteria above is satisfied, the income stream will be grandfathered. If you change income streams and the new account based pension is not begun until after January 1, 2015, it will fail to meet the above criteria and will be deemed from January 1, 2015.

Q I am 62, retired from full-time work, and withdraw the minimum 4 per cent from my self-managed super fund of $5000 a month. I spend $4000 a month and have $1000 left over. Is it possible to return this $1000 back into my SMSF, and how do I arrange this? I can’t put the $1000 into my wife’s SMSF as she would have exhausted her $540,000 in non concessional contributions this year.

A You cannot contribute to a fund in pension mode, but you could certainly open an accumulation account within your own SMSF and contribute excess funds to that account. Make sure you take advice as there are heavy penalties for getting it wrong.

Q My partner and I are in our early 40s. I have an investment property in Sydney worth $900,000, with $450,000 owing on an interest-only loan. We would like to buy a unit together for $700,000 as we currently rent and are looking at selling my house. Everyone tells me not to sell the house, but I can’t see how it is possible to keep it as well as buying a place to live in. My partner has no assets but will be able to pay half the new mortgage. Our combined annual income is $110,000. What do you think?

A I agree that you would have great difficulty in making the payments on a mortgage of $700,000 when your combined income is $110,000, but if you feel the house has good potential you could keep it and simply rent a unit. Renting is almost cheaper than owning and the property you own would ensure you had a substantial interest in the Sydney property market. Iif you sell, there will be transaction costs and a possible capital gains tax.

Q My parents and I own a rental unit, with my share being one quarter. They are thinking of selling the unit and I am considering buying out their share. I would need to take out a mortgage, but I should be able to manage the repayments with the rental income. What is the best way for us to arrange to purchase of my parents’ share of the property?

A First, liaise with your accountant because there may be some capital gains tax liability for your parents and there will be stamp duty for you. Irrespective of contract price, it will be deemed for tax purposes to have passed at current market value. Talk to a lender about the best way to structure the loan.

Q We have an investment property worth $720,000 we bought three years ago for $500,000. For the first two years we were living in this property and now have it rented out. We are now renting, have bought land and plan to start building soon. If we sell our city property and use the proceeds to help pay for our new home or another investment property, do we pay capital gains tax?

A Make sure you talk to your accountant before signing any contracts but based on the information you have given you should be within the six-year capital gains tax exemption period provided you lived in the house before you rented it out and have not claimed any other property as your principal residence since.

from The Sydney Morning Herald here:

What can I claim when I rent out old home?


I have lived in my apartment for six years, and plan to rent it out later this year.

As it was my principal place of residence for this length of time, would I be liable for capital gains tax when I sell? Once it is rented, can I claim depreciation and other maintenance costs as a tax deduction?

Unless the property was rented by you until you moved in, it will be exempt from capital gains tax for up to six years from when you move out and it becomes available for rent. The proviso is that you don’t claim any other property as your principal place of residence in that time. All ongoing costs, such as interest, rates and maintenance will be tax deductible – the rents will be assessable.

I am 80 and hold $40,000 in a super fund accumulation account, where the returns have been much better than bank interest. Is there any benefit in moving these funds to a pension account, which is already paying enough for our needs, and where it would increase our assessable income with Centrelink? On another subject, is an online account the best short term option for holding cash from a recent property sale, where the funds must be easily accessible?

If $40,000 is all you have in superannuation, I wonder if the costs of maintaining it there are worth it. Remember, superannuation funds pay 15 per cent tax from the first dollar earned whereas pension funds pay zero tax. Of course, the best strategy for you depends on the extent of your other assets so I suggest you ask a financial adviser to run the numbers for you. I agree that an online savings account is your best short-term option.

I am 49, single and have approximately $180,000 in savings, $25,000 in shares, two super funds, no debt but am renting. My salary is $90,000 and my youngest child is about to start university. I have been thinking about buying an investment property (housing), but feel that a margin loan directed towards managed funds would give me greater flexibility, and returns vs. risk, at the moment. What is your opinion?

My preference is for a quality share trust because you have the ability to buy and sell whenever you wish and do not have the worry of vacancies and damage and the costs of rates and insurance. Obviously you will need to talk to an advisor but you have sufficient cash available to have a small loan to valuation ratio if your borrow conservatively – this will make margin calls extremely unlikely. Also, if possible, you should think about amalgamating your two super funds into one to save annual fees. Just bear in mind you should have a ten year time frame in mind when investing in share based investments.

I am fully retired, 10 years younger than my husband, and am two years off reaching the preservation age for accessing my super. I understand that my superannuation account is not considered by Centrelink until I reach the pension-eligible age. Will the withdrawals I make in the intervening years count as income and if yes, will they affect my husband’s eligibility?

Your husband’s eligibility should not be affected as lump sum withdrawals from super are not regarded as income for Centrelink purposes – but once the money leaves your super fund and is placed in your bank account it will start to be counted as an asset and be subject to deeming for income test purposes.

I earn $259,000 and my employer pays the maximum allowable super guarantee, so I can’t make additional contributions. Is there any way to reduce my taxable income? I am married with two children, and pay the Medicare levy.

The reality is that there are very few tax breaks left for PAYG earners except salary sacrificing to super. You could certainly put more assets to work for you by borrowing for investment, and this is a good wealth building strategy. However, it’s not going to save you much tax because the income from the investment would offset the interest payable.

I have a $800,000 equity in my home. What would be the best way to unlock it to receive a decent yearly return?

The only way to access the equity in your home is to borrow against it, or try to sell a part share of the property. Obviously, selling is not a good option which leaves borrowing, and if you do borrow you should understand that all the equity in the world is useless unless you have the income to service any loan you take out. Furthermore, the interest would bite into any earnings that the investment you buy would produce. If you are a senior you could talk to your bank about borrowing by way of a reverse mortgage. These loans require no repayment of principal or interest but you need to keep in mind that the debt will double every eight years, therefore the loan should be small and delayed for as long as possible.

from The Sydney Morning Herald here:

How can I get my home dream to fly?


Q. I am 23 years old and have a dream to own a property. I want to start thinking about investing my money somehow. I’ve worked out on my salary that I could probably afford repayments of around $800 a month.

I have looked at home loans, but with what I am earning I can’t borrow enough money to afford anything. I have got $26,000 sitting in a high interest account but I am not sure what to do from here. What would be your advice for an investment that would give me the best return on my money?

A. If you are prepared to take a long-term view, and won’t panic when the stock market has one of its normal bad days, you could consider a margin loan for a quality share trust. Your money will be spread over a range of blue chip companies and you can start small.

Also, you will get a tax advantage as part of the income stream will be franked and you can add to your investment on a regular basis by reinvesting dividends or by making further contributions. If you seek advice and adopt a conservative loan to valuation ratio you should do well.

Q. My partner and I own five properties, including the house we live in. We are both 42 and our combined income is $250,000. The properties are currently worth $2.5 million, in good locations, with reasonable capital growth. We have between 10 and 15 per cent equity in each property, and the rents cover the outgoings.

Can you suggest a back up plan we should adopt, in case property prices start to fall and we are over-exposed to this type of investment.

A. If “outgoings” include interest, your properties are positively geared which has already given you an inbuilt safety factor. The biggest danger for property prices is rising interest rates, as this could force overexposed investors to dump their properties on a falling market. One way to protect yourself against rising rates is to fix your interest rate for the next five years. Another option is to pay the loans down to reduce your interest commitment, or simply accumulate surplus funds in an offset account.

Q. My parents have moved to a unit and are going to sell the family home which was built in the 1950s. Are there any tax or pension implications if they gift the bulk of the sale proceeds to their children?

A. There should be no tax implications for the parents, as the house is a pre capital gains tax asset and would be exempt irrespective of when it was bought, as it was their residence. However, if they are receiving benefits from Centrelink, there could be huge implications – the money is currently in the form of an exempt home but once the money is gifted to you, it will be treated as a financial asset and will be subject to deeming for the next five years. Make sure you take advice at every step of the way.

Q. My husband and I rely heavily on franked dividends for retirement income as we are self-funded retirees and have heard the government may be scrapping the imputation credits. If this happens, what impact would it have on the share market and the people who rely on the credits for tax free income? Hopefully it would not be scrapped entirely but phased out over time.

A. There is always talk about changes to the tax system and this includes scrapping negative gearing as well as making changes to the imputation system. In my view, it’s a long way from the crouch to the leap and expect huge opposition if any government gets serious about these type of changes. The abolition of the imputation system would have a massive effect on the stock market as Australian shares would become less attractive. It could create a swing to international equities, or horror, even more people investing in overpriced property.

Q. My wife and I are looking to buy our first investment property. We have a $60,000 cash deposit, $130,000 combined income, no debts and a good credit history. We are looking at buying a positive cashflow unit with sufficient growth to enable us to leverage into a second property as soon as we can.

Given we are starting with no capital, and a small deposit, is it worth using lenders’ mortgage insurance to borrow a larger amount, giving us more options in finding the right property? It would take us two years to save a further $10,000 or $20,000, which may mean we don’t need the insurance but we could miss out on potential gains from buying in the current market.

A. The correct strategy depends on the potential of the property you are going to buy. In other words, you need to weigh the cost of mortgage insurance against the extra cost you would have to pay if the property appreciated by more than the value of the mortgage insurance while you were saving. There is no easy answer, it is really up to you to understand the market.

from The Sydney Morning Herald here:

Tax return doesn’t cut the mustard – Q&A


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.