I have held some shares for about 15 years. They are now valued at about $70,000, with large capital gains. I would like to cash in these shares, and pay the proceeds into my super fund. I work four days a week and pass the work test. I am 68 years old. I am contributing $25,000 a year into super at present.
I realise there is a capital gains tax (CGT) to pay, and I have kept good records.
After I receive the money for the shares, and pay the amount (keeping some back to pay my CGT) into super as a lump sum, can I claim that payment as a tax deduction?
Provided total concessional contributions to super from all sources are no more than $25,000 in the year you make the contribution you can claim a tax deduction for the contribution. But bear in mind that you cannot contribute an additional $25,000 if you are contributing that much a year now. Deductible contributions will incur a 15 per cent entry tax. You can make a non-concessional contribution instead, but this by definition would mean no tax deduction.
I am 18 and want to begin investing in the ASX. Are there any safe, worthwhile investments you would recommend?
The easiest way is to buy a low cost index fund. A good one is offered by State Street and its ASX code is STW. It tracks the top 200 shares in the Australian Stock Exchange. Don't confuse this with the company STW which is a public relations organisation.
I want to clarify the rules regarding Airbnb and CGT. If I choose not to claim expenses I have incurred in relation to renting out rooms in my home, but simply declare rent as 'income', can I avoid the CGT on the home at point of sale if I decide to sell up and move?
It's not quite that simple – the way to avoid the CGT problem is to move out of the home while the guests are there. Then you will be able to take advantage of the six-year rule which allows the property to be rented out for up to six years as long as you do not cover another place with your CGT main residence exemption during that period.
I am 47, married with one child. I have $190,000 outstanding on a home worth $1.1 million. I have recently taken out a home equity loan of $560,000 to purchase shares. I have about $200,000 in super, to which I contribute $25,000 a year. I pay income tax at the top marginal rate. I expect that that position will continue for the next 10 years. Could you please explain the benefits of investing in an insurance bond?
The benefit of investing in an insurance bond is that you are moving money to an area where income tax is just 30 per cent, which is much lower than the 47.5 per cent you are paying now on any investment income.
The bond proceeds are only tax-free if the bond is kept for 10 years or longer, but if you redeem early a 30 per cent rebate on the proceeds would eliminate much of the tax if you were then in a lower income bracket. Of course, a feature of insurance bonds is they can be transferred CGT-free at any time to another party. An alternative strategy would be to make non-concessional contributions to super where the tax paid by the fund is just 15 per cent. The disadvantage of this last option is that the money will be inaccessible until you reach your preservation age.
Should a person buy an annuity at, say, 65?
An annuity is simply an income stream which you purchase in exchange for a lump sum. They can have a range of terms and conditions, and you need to take advice to ensure that the one you buy is appropriate for your situation. For example, if you take out a lifetime annuity, you need to decide whether it is indexed to inflation or payments are unchanged for the term of it. My view is that it would be unwise for a 65-year-old to take out a long term annuity at this time because we are currently in a low rate environment. You also need to discuss issues such as what happens if you die prematurely.
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. Twitter: @noelwhittaker