Ask Noel: am I a pensioner for the purposes of Labor's tax plan?
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Ask Noel: am I a pensioner for the purposes of Labor's tax plan?

I am a self-funded retiree who lost my part pension last year with the changes to the assets test as my assessable assets were just under $1 million. I have a pensioner card but receive no pension.

Am I classified as a pensioner for Labor’s policy purposes and therefore exempt from the proposed changes to dividend imputation tax refunds? In short, am I a pensioner who receives a zero pension, or am I a non-pensioner as far as the proposed rules are concerned?

Illustration: Simon Letch

Illustration: Simon LetchCredit:

Shadow Treasurer Chris Bowen’s office has confirmed that you would be a non-pensioner under their proposed franking credit rules, and thus would not be eligible for a refund of any excess franking credits. But keep in mind that there is a huge groundswell of opposition to the Labor proposal, and it may well be watered down, or even fail to go through when the time comes. Therefore, there is no need to take any urgent action.

However, given you are probably only $150,000 above the couple homeowner asset test cut-off point there are actions you could be contemplating to reduce your assessable assets. These could include going on a trip, renovating your house, giving away $10,000 a year for the next two years, and even putting up to $13,000 each into funeral bonds. But anybody contemplating action such as these should do a cost-benefit analysis. There may be no point in spending say $150,000 just to qualify for a minuscule age pension, the Health Care Card, and franking credits of $10,000. Also, there is a strong possibility that the pension will continue to be tightened – if that happened you could dispose of assets to become eligible and then find yourself ineligible if the goal posts are moved again.

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My partner works for a startup company and she has been given options in the company that she can realise early next year. She has been working with them since the start of the company several years ago. When she exercises the options will she have to pay capital gains tax straight away or will this only happen if she exercises the options and sells straight away? Also can she reduce the capital gains by 50 per cent by exercising and then holding for a year? The options are at $0.20 and the current share price is over $10 and she has a significant amount of options.

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Julia Hartman of Bantacs says that the 50 per cent CGT discount requires 12 months ownership which won’t start until she has exercised the option. There may also be income tax payable because she has received a discount of more than $1000 under an employee share acquisition scheme. The good news is that her employer is a start up company which qualify for range of tax concessions depending on the status of her employer. There is further information on the ATO website: http://www.ato.gov.au/General/Employee-share-schemes/Employers/Types-of-ESS/Concessional-ESS/Start-up-concession-(interests-acquired-after-30-June-2015)/. For your partner to be able to make the most of this she needs to liaise with her employer to optimise the tax position for all parties.

As the pension age is increasing to 67, are you allowed to make contributions to super at 66 and 67? If not, why not?

Under the existing rules people aged between 65 and 75 can make contributions to super if they pass the work test which involves working 40 hours in 30 consecutive days in the year they make a contribution. The Coalition has been attempting to remove the work test and allow everybody to contribute to age 75 but both Labor and the Greens opposed the proposal and it did not become law. Maybe it's worthwhile asking them for their reasoning.

I am 78 and have $1.2 million in superannuation. Which is better, leave my money in accumulation mode and draw down when needed or start an account-based pension?

If you leave your money in accumulation mode, you will be paying 15 per cent a year tax on income but there is no requirement to withdraw any money. If you move to an account-based pension, the fund will become a tax-free fund but you will be required to draw a percentage of the balance each year, and this percentage will increase as you get older. Just keep in mind that you can earn at least $18,200 a year tax-free in your own name, so it’s really a matter of looking at your overall position and discussing with your accountant what will work best from a tax point of view. Remember, money in superannuation incurs annual fees, and there is a death tax of 15 per cent plus Medicare levy on the taxable component left to a non-dependent.

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There are many calculators on the web that can tell me how much I need to retire, but I can’t find one for retirees who were trying to work out how long the money will last. Any suggestions?

If you go to my website www.noelwhittaker.com.au and go to Calculators, you will find a Retirement Drawdown Calculator which should give you the numbers you need. Just keep in mind it’s a rough guide because as your assets reduce you might qualify for a part age pension which could lessen the rate at which your capital is being drawn down.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. noel@noelwhittaker.com.au

Noel Whittaker, AM, is the author of Making Money Made Simple and numerous other books on personal finance.

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