Taking calls on talk-back radio is a great way to find out what is bothering listeners. And it also highlights the need for financial advice. Last month I did a broadcast for ABC Sydney - here is a sample of the issues raised.
One call was from a woman who had won a financial consultation with an "adviser" in a "lottery".
She was 55, had no investment experience whatsoever and was happily invested in one of the better performing superannuation funds. This "adviser" urged her to start a self-managed super fund and transfer her existing super to it.
When I asked her what his reasoning was, she said he told her she could get better returns than her fund was getting. I warned her against it: this kind of advice has red flags all over it!
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The fact that she "won" the consultation in a so-called lottery is highly suspect and any advice to start a self-managed fund should be treated with suspicion, unless the client is experienced in financial matters, and is keen, and able to do their own thing.
Another call was from a 68-year-old woman who told me she was worried sick. Apparently late last year she withdrew $84,000 from her superannuation fund and lent it to a good friend.
The good friend dutifully paid it back with a cheque, but her super fund refused to accept it as a contribution because of her age. I had good news for her - that was last year's problem. Since July 1, when the superannuation rules changed, anybody can contribute to superannuation to age 75 without passing the work test, unless they had more than $1.7 million in superannuation. Problem solved.
Another caller was keen to help his son buy his first home. He figured that he and his wife could be partners in the purchase, which would enable their son to buy the property.
I pointed out that this would most likely cause problems down the track, as owning a substantial share of an appreciating asset could hinder and possibly even prevent their eligibility for the age pension when it was time to apply for it.
Furthermore, there could be substantial capital gains tax to pay when they decided to transfer the property to the son. The other factor is that even if they made a gift of their equity in the property to the son, it would be held by Centrelink as a deprived asset for five years, which could have a big impact on any pension.
A much better option would be to guarantee their son's loan - it should still enable him to qualify for a loan if all of the other conditions were satisfactory, and they would not suffer the problems mentioned above.
Naturally, there were many calls asking whether to hold off making contributions to superannuation until the market had improved. I pointed out that trying to time the market is a mugs' game, and that the biggest rises in share markets normally come very quickly when the bottom has been reached.
These days people can expect to live well past 85 - superannuation is a long-term investment in which you keep assets in a low tax, or even zero tax, environment.
Good superannuation funds have averaged 8 per cent per annum for many years - but this is not a straight line return. More likely it is 15 per cent one year, 6 per cent in another and even a negative return in some years. When markets are down, continuing to contribute offers a great opportunity to boost your superannuation when assets are selling at bargain prices.
These are all common questions, and as you can see, the answers vary in complexity. There are a few simple principles though.
Remember that people offering you "free" advice expect to get a generous payback, or they wouldn't bother.
Check your superannuation rules before you make any changes to it - your fund should have someone you can talk to.
Don't try to time the market: invest regularly, or whenever you can.
And last but not least, for something more complex, like helping someone buy property, or setting up an SMSF, you need to find a reputable financial adviser. Their advice will cost you, but it should save you their fee, and then some.
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Noel answers your money questions
You have often written that the date of the contract of sale is the relevant date for CGT purposes. I am in the process of selling a property and my accountant says this is wrong - he claims it's the date any final conditions on the contract are met, not the date of the contract. This could make a big difference to the CGT payable, and I think this fact should be made public.
Mark Molesworth of BDO says you have been misinformed. The relevant date for CGT is the date the contract is formed, even if completion of the contact is subject to conditions that are as yet unfulfilled. Sometimes arguments are made that the conditions prevent the formation of the contract (as opposed to its completion).
These types of conditions are rare. In the usual course of events in the usual property sale context, conditions as to building and pest inspection, finance etc do not prevent the formation of the contract. Therefore if the conditions are satisfied and the contract completes, the relevant date for CGT purposes is the date the contact was formed, not the date it went unconditional.
I just read your article about withdrawing money from my super and then re-investing the same amount via a re-contribution strategy.
Are there any disadvantages around taking money out and putting it back in again and what would I need to consider before doing so?
For example, if I put the money back in immediately, would it make a big difference to my accumulation and interest?
Once you reach your preservation age, you can make tax-free withdrawals at will, and provided your overall superannuation balance is less than $1.7 million you can make non-concessional contributions of $330,000 using the three bring-forward rule without any entry tax.
There are no disadvantages in doing this, except that you should be aware that you can't elect which components you can withdraw. Therefore, if you withdrew $330,000 and re-contributed it, the amount you withdrew may already contain a substantial taxable component.
The non-concessional contribution you make would be entirely non-taxable, which would greatly increase the non-taxable component in your fund.
There is a lot of information out there regarding the superannuation changes that came into force on July 1. You recently wrote that anybody can contribute to age 67 now, but from July 1 anybody could contribute until age 75 without passing the work test. My financial advisor has confirmed that the work test is being removed from July 1.
From the emails I'm receiving it's clear that much misinformation is being put around. The legislation is clear - since July 1 anybody can contribute non-concessional contributions to super to age 75 as long as their balance does not exceed $1.7 million. But to make concessional contributions (tax-deductible contributions) you will need to pass the work test which involves working 40 hours over 30 consecutive days.
I would appreciate some more information about carry-forward superannuation contributions. I understand that the scheme started in the financial year ending June 2019, but only five years of contributions can be carried forward.
Does this mean that all unused contributions are reset to zero on July 1, 2023 or does it mean that one year's contributions drop off each year. If this is the case is there a new five year carry forward period?
Under present laws anybody aged between 67 and 75 must satisfy the work test to claim a concessional superannuation contribution tax deduction. If a person aged 72, did not pass the work test in the last three years, but can now pass the work test, can they still carry forward five years contributions even for those years they could not pass to work test.
John Perri of AMP Technical tells me that unused concessional contribution cap amounts from July 1, 2018 and future financial years can be carried forward for 5 years. These amounts relate to a specific and previous financial years and a particular years unused amount is no longer counted once 5 years have elapsed. There is no reset of the total amount to zero on July 1, 2023.
Under the new rules from July 1, 2022, a 72 year old who previously did not meet the work test in the last three years, but can now pass the work test this financial year, will be eligible to carry forward unused concessional amounts since July 1, 2018, even if they could not pass the work test in those years.
Please note that you must have a total superannuation balance, ie sum of amounts held in accumulation and pension, of less than $500,000 as at June 30, 2022, to be able to use these catch up contributions in the 2022-23 financial year. You can get information on your total super balance and unused contributions from the ATO super section of your MyGov online account (if you have one).