This was published 7 years ago
A gift to your grandchildren can be a boon for the Tax Office
I want to give my seven grandchildren $25,000 each to be put into term deposits, compounding, with the hope that they will eventually use the money for tertiary education or a deposit on a house. With an interest rate of say 2 per cent, the income would be $500 each, increasing. I do not want their interest to be subject to a penalty rate of tax, and I do not want their interest to add to their parents' taxable income. So, if each deposit was in the name of the child, and each got a tax file number, would the interest be tax free as long as it was less than the tax-free threshold?
Unfortunately, money gifted to minors suffers a punitive tax at the top marginal rate once interest exceeds $416 a year. A better option may be to invest in insurance bonds which are not subject to tax in the holder's name each year because it is paid by the fund – I would expect a share-based insurance bond to do much better than 2 per cent a year.
The Tax Office is rapacious when it comes to money gifted to minors.
When applying for a part age pension I overestimated my casual wages – when I file my next tax return and have the actual wages for a year, should I then contact Centrelink so they can calculate if I was to be paid a higher fortnightly pension? Would they then credit me with a lump sum to make up what I have missed out on?
A Centrelink spokesman says that waiting until the next tax return is too late to let the department know of any mistakes in reported income.
It's important that people in receipt of an income support payment report any changes to their or their partner's circumstances. If they have been advised by Centrelink that they should report their income situation every fortnight, they must report their own income and their partner's income earned in the entire reporting period, even if they haven't yet been paid by their employer. This will ensure their payment continues to be paid at the right amount.
If they have not been told to report fortnightly, they must advise within 14 days of a change in their circumstances – this can include whether they've earned income.
Centrelink suggest you notify them of your exact earned income as part of your notification obligations so that they can pay the correct rate of pension.
Can you please clarify what the non-concessional contribution cap will be after June 30 for a person who has just under $1.6 million in pension mode, but also has, say, $200,000 in accumulation mode?
If a person has more than $1.6 million in total superannuation assets, both pension and accumulation combined, their concessional cap will be zero after June 30 and no further non-concessional contributions can be made.
Therefore, it is important for anybody who has the funds available to investigate making contributions before 30 June when the rules change and the amount that can be contributed will be reduced.
I am 66 and retired. My husband is 67 and will be retiring next year. I have a fairly small superannuation account. Can I transfer to his superannuation account?
You can't simply transfer your superannuation to your partner's superannuation. But you could achieve your objective by withdrawing your balance, and allowing your partner to use the cash so freed up to make a non-concessional contribution. From the information provided he is still working so he is eligible to contribute. If you did this you would lose any insurance held within super and the ability to directly control the funds. An alternative would be for both of you to cash out your super accounts. You are both over pensionable age so there is no Centrelink advantage in keeping the money in super.
Can you advise me if a self-managed super fund can lend money to a private company (not owned by any of the members) with the view to earning a guaranteed interest rate for the term of the loan?
An SMSF may lend money to a unrelated party on an arm's length basis. However, ordinary investment considerations would apply – for example the investment/loan should meet the sole purpose test, the trustees should act prudently to protect their members benefits, the investment should complement the fund's investment strategy.
To ensure the transaction is on an arm's length basis it would be prudent to confirm whether a bank would lend to the prospective borrower and on what terms.
The investment should be run past the fund auditor to ensure they are comfortable with the investment and happy to sign off on the compliance of the fund.
If the SMSF were to lend to a related party, the Tax Office would scrutinise the investment to ensure there was no financial assistance being provided – the investment would be considered an in-house asset meaning it could not exceed 5 per cent of the fund.