Illustration: Michael Mucci
Q I am 59, my wife is 56, both working full time and hoping to retire when she turns 60. We contribute 25 per cent of our gross salary to super and our combined balance is $600,000.
We have a $50,000 mortgage over our residence, a $200,000 mortgage over an investment property, and $200,000 worth of pre-1985 shares.
We plan to sell the shares and borrow $100,000, or use some of my super when I turn 60, to buy a small property in London as retirement income and as a base for my children.
We also plan to sell our home and move into the investment property, hopefully avoiding any potential capital gains tax. Do you think that our plan is feasible?
A I must confess I'd rather see you rent in London, and leave your pre-capital gains tax shares intact, but it is up to you to decide if a lifestyle decision outweighs one based on investment fundamentals. You cannot avoid CGT by moving into the investment property, but the longer you live there the less any potential CGT will be.
Q My wife and I built a unit and put it through the National Rental Affordability Scheme. We share as joint tenants (owners) in the tax offset of about $10,000 a year. My wife retired last year and has no income, apart from 50 per cent of the income on the unit. Can I declare all the income and expenses to myself (it has always been a net loss) to maximise our claim, or do we just miss out on the 50 per cent of the expenses I have in the past apportioned to my wife's income?
A Unfortunately, you cannot rewrite history. All you can do is focus on reducing the debt.
Q Can you please advise me about salary sacrifice? Does the company have the right to put this into another super account other than the primary account I have? I now have two accounts, but the company does not want to change.
A Salary sacrifice is not compulsory on employers. It is an arrangement between the employer and the employee, which means the company could simply offer to make such contributions to a specific fund. The employee would have to authorise the employer to do so, but the employer could insist that the salary sacrifice arrangement is to a specific fund - take it or leave it.
Q The federal government has been sneaky with the rebate calculation on private health insurance. It appears that when a person has reportable fringe benefits on their PAYG summary, the calculation for working out the eligibility for the rebate takes the whole fringe benefits tax (FBT) amount. However, Centrelink reporting for income purposes will adjust an FBT amount by 53.5 per cent when working out a person's adjusted taxable income and all the other categories, such as reportable super add-backs and rental losses. The health insurance rebate does not allow in the calculation the same reduction on FBT. What a rort.
A You are correct about the private health rebate. However, there are variations in the definitions of income, including reportable fringe benefits (RFBs), for various tax and social security measures. A classic example of a difference is for financial investments when tax is based on actual return, yet social security deems them at a different rate. I wouldn't consider it a rort, but do agree such variations are confusing and must be costly to administer. Simplification and consistency would be helpful. Let's hope the government doesn't change social security law to use grossed-up RFBs.
Q My husband and I are 44, with three children. My husband earns $115,000 a year, while I don't work, and don't plan to in the short to medium term. We have a total of $320,000 in super, and my husband salary sacrifices $10,000 a year. We own our home, have a share portfolio worth $95,000, and $30,000 in cash, all in my name. What is the best way to get our money working and grow our capital? We don't want to own property directly and are nervous about debt.
A You need to set some goals, which will give you focus. Therefore, I recommend you form an association with a good financial adviser, who can help you decide when you want to retire, how much you will need then, and what are the best strategies to get there. Even though you're nervous about debt, a good strategy could be to borrow in a conservative manner against your debt-free home for investments in a quality share trust. If you took out an interest-only loan of, say, $200,000, the repayments would be about $12,000 a year tax-deductible and this would see $200,000 of quality assets working for you.