This was published 7 years ago
Can I lend money to my children without losing my pension?
By Noel Whittaker
I am 73 and assessed for an age pension under the assets test. How can I legitimately lend money to my children?
You may gift $10,000 each financial year with a maximum of $30,000 over five years. Any money gifted in excess of this amount, or lent, will be treated by Centrelink as a deprived asset and will be subject to deeming for five years.
Young families may find salary sacrifice into super more tax-effective than buying an investment property.
Given the fact that deeming in itself does not change the status quo, another option may be to make a larger gift now – this will not change your pension, but in five years the deemed asset will no longer be assessed. If you simply lent the money it would be assessed until repaid.
We are a family with four young children who will all be at school next year. We currently have $250,000 owing on our home loan and no other debt. We have another 20 years before we retire. One of our incomes is $135,000 and the other is $20,000. We are thinking of buying an investment property to reduce the tax on the higher income and have something for our kids' future. Our question is, is it better to buy an investment property for $500,000 or salary sacrifice into super?
Buying an investment property will save a minimum amount of tax in these days of low interest rates. I believe a combination of salary sacrificing to the maximum in the name of the highest income earner, plus using all spare money to quickly reduce the mortgage is the best option for you at this time. Every year you can re-examine your position and adjust your strategy if needed.
I am still confused about whether it is possible for a person with more than $1.6 million in pension mode to make further non-concessional contributions next financial year. Given that the limit on non-concessional contributions will be $100,000 from July, what is the cap for a person whose balance is just under $1.6 million? Can they make the full $100,000 contribution or is it just the difference between $1.6 million and their current balance?
The way the regulations are drafted means that a person cannot make non-concessional contributions if their balance was $1.6 million or over on June 30 in any year. Therefore, if your balance in pension mode was $1.595 million on June 30, 2017, and you are not prohibited from making contributions due to your age, you would be allowed to make a non-concessional contribution of $100,000.
In a recent article John Collett stated that people over 18 are entitled to be paid 9.5 per cent of their wages in compulsory super. Is that 9.5 per cent from their wages, meaning they get 90.5 per cent in their pocket, or 9.5 per cent on top of their wages from their employer's pocket?
The employer has an obligation to pay 9.5 per cent superannuation in addition to the wage – it may be part of an award. An employer may quote a salary package that includes super as long as it is above award.
Regarding the ageing population and the transition of super assets down the family tree, what kind of strategies will be adopted to efficiently pass assets down in superannuation that are tax effective? I want to make it as easy as possible for my parents.
Most people's super fund has both taxable and non-taxable components. When a member dies, there is a tax of 17 per cent on any part of the taxable component that is left to a non-dependent. A spouse is always a dependent – working or not. In a situation where a good chunk of the superannuation may be left to a non-dependent it is good estate planning to grant a trusted person an enduring power of attorney with instructions to withdraw the money from super if there are indications that death is imminent.
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: asknoel@fairfaxmedia.com.au.