You recently answered the query of a reader who has $2 million in an allocated pension account, and suggested he could withdraw a lump sum to reduce the balance to the required $1.6 million by June 30, 2017.
The problem is he will not know what the amount required is until after June 30. Do you think the government should give such people until, say, September 30 to withdraw the required amount? And will the $1.6 million be indexed?
The thinking in Canberra is that superannuation should be set at an amount that is considerably above the age pension cut-off point but not excessively so. You may have noticed that $1.6 million is slightly less than double the proposed asset test cut-off point of $823,000 which will come into force in January. As the pension asset test is indexed to CPI, the government believes that the $1.6 million tax-free limit should also be CPI-indexed. It will rise in $100,000 increments – current modelling indicates that the $1.6 million limit may rise to $1.7 million in the financial year ending June 2021.
In my view there is considerable work to be done regarding the mechanics of the implementation on June 30. The government expects that people will reduce their balances to slightly under $1.6 million prior to June 30 and then roll funds back in to bring the balance back to $1.6 million in the next financial year. This could present a problem for those who hold unlisted assets such as direct property in their fund – anybody who holds managed funds within superannuation will know that a valuation at June 30 always takes at least two weeks from June 30. I agree with you that a realistic solution would be to give people three months from June 30 to get their affairs re-established.
I live in my home and have a small mortgage. If I decide to live in a rental property, rent out my principal place of residence and re-draw some of the home loan to invest in shares, would I still be required to only claim a tax deduction on the interest of the original home loan amount? Am I able to claim a deduction on the interest of the loan I re-drew for purchase of the shares?
Once your property becomes available to rent, the interest on the existing mortgage becomes deductible. If you take out a new loan against the property to buy income-producing assets such as shares, interest on that loan will also be tax-deductible. I suggest you keep the loans strictly separate, in case you decide to move back in.
We currently receive a part age pension based on our assessable assets of $800,000. Our main income is our allocated pension. Included in our assets is a beach house which to date we have kept solely for our family use.
We are now contemplating renting it out. Would the rental income affect our part pension, which will already suffer a significant hit on January 1, 2017?
At that level of assets you will be assessed under the assets test – the rental would be included as income, but should not affect the outcome as the property is already counted under the assets test.
I have recently placed some money in a managed investment fund and each month withdrew a set ''dividend'' to supplement my modest super. The fund periodically reinvests earnings, which they call ''distribution'', to my account. In order to avoid the ups and downs of the share market – which at the moment leaves me with a relatively static balance – would it not be more sensible to have these earnings credited to my bank account?
The benefit of having the earnings reinvested is that you can take advantage of dollar cost averaging – when the market is down the same amount of dividend buys you more units in the fund. This would be best if you are a long-term holder – but if you are older, and running down capital, it may be simpler to have the funds credited to your bank account.
My husband and I have a self-managed fund from which we draw a pension. It is "grandfathered" but what happens if, as we age, we decide to transfer the proceeds to a retail super fund? Are we able to do this and keep the current status?
If you move the money to a different fund you will lose the grandfathering provisions.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: noel@noelwhittaker.com.au