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I earn $139,000 including super, and my husband is a self-employed artist who doesn’t earn enough to pay much tax.
We set up a SMSF a few years ago, and I continue to contribute although my husband does not. We took out a loan through the SMSF to purchase a commercial property for his work, and he pays rent to the SMSF to cover the mortgage. The loan is now $150,000, and the SMSF does not pay tax on the rental income.
Would it be better for him to make the rental payments as a contribution to the SMSF so the fund would avoid paying tax on the rent?
Superannuation expert Monica Rule advises that if your husband is leasing the commercial property owned by the SMSF for use in his business, he will need to pay rent at the market rate to the SMSF. The SMSF will then pay 15 per cent tax on the rental income.
Your husband is able to make concessional and/or non concessional contributions into your SMSF. If it is a concessional contribution, the SMSF pays 15 per cent tax on the contribution. However, you cannot treat the rental payments as contributions if he is leasing the property from the SMSF.
I am 60, retired; and my wife is 45, earning $130,000 a year, planning to retire in 10 years. I have $150,000 in savings, $40,000 in shares, but no super as I recently migrated to Australia from overseas.
We have a mortgage of $359,000 over investment properties worth $1.3 million, returning gross monthly rent of $4500.
Do you think we should invest in more property, or more shares? Would it be more tax effective to make any investments in my wife’s name while she is still working, and while she is able to service any loans? What do you think is our life expectancy?
In view of your high exposure to residential property, it would be a good strategy to take advice about moving to good share based investments. Your wife should be salary sacrificing the maximum allowable into superannuation, and you should ask your adviser to do calculations to find out if moving your money to superannuation would save you tax.
Being 60 you could easily hold assets in the pension phase of super which would negate any tax payable in super. Keep in mind that you can earn $18,200 tax free, while money in super is taxed at 15% per annum from the first dollar earned. A major factor would be which of you own the investment properties which are positively geared. If you wish to get an idea of your life expectancy, go to mylongevity.com.au, where there is a free life expectancy calculator.
Could you please advise the amount a couple of pensionable age can earn each year before they need to pay tax or lodge a tax return? I have seen figures of $30,000 to $32,000 in the media, but cannot find any reference to it on the ATO website.
A couple who qualify for the Senior and Pensioner Tax Offset (SAPTO) can earn up to $28,974 each tax free. Once they exceed this threshold, the offset decreases by 12.5% until it cuts out totally at $41,970.
My home is worth $550,000, and my super $350,000. I have shares worth $720,000 and managed funds worth $100,000, funded by loans of $400,000 against my home. I’m wondering if I should cash in the managed funds, pay any capital gains tax that is applicable, and contribute the balance to super as a non concessional contribution. I am only 45 with many good earning years ahead of me, and would feel better having more of my assets inside super than outside it.
Congratulations on what you’ve achieved to date – you are well set for retirement. I agree with your strategy as the funds should give a better after tax return within superannuation – it would also increase the tax benefits of your gearing plan. You should think about using the same strategy with the shares over time – meanwhile make sure you contribute the dividends to super each year. Consult your accountant when redeeming the funds outside super as there may be some deductibility of interest issues with retaining all of the debt, you may need to proportionally reduce the loans when the managed funds are sold.
We purchased an investment property in 2004 and rented it out until July 2012, when we sold our principal place of residence and moved into the investment property. I understand the scenario regarding CGT for this property on its sale if it is still our PPOR, but our circumstances have changed.
We wish to travel and rent out our PPOR, and would like to know how it would be treated for CGT. Does the six year rule apply from 2012, or is it pro-rated over the years we have lived in the property, then rented it out, moved back in, then rented it out a second time?
The six year rule applies from the date you vacate the property. As it was rented before it was occupied, CGT will be calculated on a pro rata basis according to the time it was covered by your main residence exemption. Provided you don’t nominate any other property as your principal residence, the period covered by your main residence exemption will be from July 2012 to six years after you move out and rent it out. If you move back in again that period will also be exempt and up to six years after you move out again.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature. Readers should seek their own professional advice before making decisions. Email: email@example.com.