Regarding the $1.6 million cap introduced by the federal government in the May budget, I currently have a super balance of $2 million, from which I draw down a 5 per cent pension. I am 68, own my home, am mortgage free and a self-funded retiree receiving zero dollars from the government, and also the holder of a Commonwealth Seniors Health Card. My understanding of the recent changes is that if a superannuation holder makes any changes to their account, that they in turn lose the CSHC. So what happens now that people have to make an adjustment to bring their account into line with the $1.6 million limit; will they lose access to the card? The Government is doing everything possible to take as much away from people like me, who are not a burden on the government purse in terms of an age pension. B.M.
Draft legislation was released in early October and a bill is expected to be tabled in November.
In practical terms, it proposes that the Tax Office will maintain a "transfer balance account" for each person with a super pension and will credit this account on July 1, 2017 with the money that you have in your pension(s). If a pension is started at a later date, the Tax Office will credit your account with that initial pension.
For each person with more than $1.6 million in their pension fund (and don't we all wish we did), the Tax Office will notify the trustee of the fund, who must then either transfer the excess back to accumulation phase or pay it out as a lump sum, the latter assuming the member has met a condition of release e.g. retired or over 65. (Defined benefit pensions will have a different treatment.)
A special 15 per cent tax, to be called the "excess transfer balance tax", will be charged on the notional earnings of the excess portion of the pension and you will have the choice to either pay the tax personally or out of the super fund.
Where shares are to be transferred in specie to the accumulation phase, the draft suggests an option to reset the capital gains tax (CGT) cost base as at June 30, 2017. However, for those maintaining both pension and accumulation accounts within a self-managed super fund, the segregated method will no longer be available. Selling an asset in a non-segregated fund will thus create a CGT event, with tax liability to be apportioned over all the assets in the fund. I suspect it may be easier to simply run two super funds but will wait for the bill to pass through Parliament.
And no, your accumulation fund will not be subject to deeming for the purposes of the Seniors Health Card, ($400,000 would otherwise be deemed to earn $12,262 a year). But If you should ever lose the Health Card, you will then be true to your claim that you are not a burden on the taxpayer.
Being a new Asian migrant as a permanent resident for 10 years in Sydney, I have two related questions: 1. If I am 65, an owner-occupier having a unit worth $850,000 with an annual income of about $60,000, would I still be eligible for an age pension? 2. What happens if I retire and am not earning income? I don't have much savings in my bank and have no other investment. D.N.
Your home is ignored by Centrelink's income and assets means tests. You can have a little over $150,000 in savings before the income test begins to reduce the maximum single age pension of $877 a fortnight ($22,805 a year), which is what you would receive, from what you say about your savings.
However, if you retire now, at 65, your income will see a significant drop from your current $60,000 a year and I generally suggest that, if people want to maintain a higher standard of living, they are usually better off continuing to work.
A lot of retirees would hold Telstra shares as part of their assets and we have just under 30,000. Does the recent buy-back mean our dividends will increase because Telstra has fewer shares on which to pay dividends? We swap between banks to get the best rate of return but my wife mentioned a company called Latrobe Financial and how they seem to pay a good return. What do you think of that kind of investment for oldies, or do you know of any others? L.V.
The recent Telstra buyback saw shares sold at the lowest margin of 14 per cent below market price, with parcels cut back, which indicates a lot of people wanted to sell. So, yes, Telstra should now have fewer shares on offer, but it will have to maintain or increase profits in order to increase dividends.
Latrobe is a family-controlled mortgage lender based in Traralgon, Victoria that takes in cash and term deposits offering higher rates than the banks, with an office in Shanghai, which is a little unusual. I used to be a big fan of mortgage funds but they lost me after so many people got burnt by collapses in the 1990s (Estate Mortgage, MFS/Octaviar) and then after the global financial crisis (Westpoint, Fincorp, Bridgecorp, LM, Provident, Banksia, Braddon).
I can't deny Latrobe is a survivor, since 1952, and must be congratulated for keeping its doors open through the GFC. But the lowest risk approach is to stick to bank term deposits and a judicious selection of dividend-paying shares.
You always advise people to talk to their accountants but what shall I do if my accountant is useless? My business has struggled badly for the last 12 months due to a sharp drop in foot traffic caused by surrounding construction and I might have to sell assets to keep afloat. I am with the same accountant almost 20 years but constantly spot mistakes on BAS, IAS and tax returns. Quite often his bills spell my name wrong and even address me in the wrong gender. But I worry that changing accounts may trigger a tax audit since everything was set up based on his "expertise". I own five investment properties, three outright (worth $500,000, $800,000 and $1 million respectively) and two mortgaged (worth $1.5 million and $2 million with mortgages of $650,000 and $1.1 million respectively, the latter owner occupied). All are positively geared. Which one should I sell with the least tax implications?
You shouldn't mix business and friendship and I can only suggest that you talk to another accountant. You would have to determine the cost base of each property to determine which would have the least CGT liability, although your owner-occupied property, if never rented, would have no capital gains tax to pay.
I think the Tax Practitioner's Board, which claims to regulate all tax agents, would be interested in your accountant.
If you have a question for George Cochrane, send it to Sunday Money, PO Box 3001, Tamarama, NSW, 2026. Helplines: Financial Ombudsman, 1300 780 808; Centrelink pensions, 13 23 00.