26 NEWCASTLE HERALD Thursday, June 18, 2015

business PERSONALFINANCE

Split super fundsandwinNOELWHITTAKER

Splitting superannuation

with your spouse can

save you money.

Cabinet has disagreed in recent weeks over superannuation.

Noel Whittaker is the author of Making Money Made Simple and numerousother books on personal finance. His advice is general in nature andreaders should seek their own professional advice before making anyfinancial decisions. Email: noelwhit@gmail.com.

THE attacks on superannuation areongoing. Labor has alreadyannounced plans to increase taxeson super, while my Canberra spiestell me that Assistant Treasurer JoshFrydenberg was openly amenable tochanges at a retirement conferencein Canberra last week. This isdespite promises by his leader, TonyAbbott, that any changes were offthe table.

One thing is clear – any steps wecan take to protect oursuperannuation should be donesooner rather than later.Fortunately, there is one strategythat is simple, legal, and highlyeffective; splitting yoursuperannuation with your spouse.

It works like this. Once a year youcan instruct your fund to transfer toyour spouse 85 per cent of yourconcessional contributions made inthat year. Non-concessionalcontributions cannot be transferred.Your spouse must be under 55 ifretired, or between 55 and 65 if notretired. You can be of any age.

Just keep in mind the transfermust be completed by June 30.

Think about Mike, aged 52. Heearns $145,000 a year and iscontributing $35,000 a year tosuperannuation, due to acombination of the compulsoryemployer superannuation and hisown voluntary sacrificedcontributions.

He already has more than $400,000in superannuation but his wifeHelen, who has a casual job, hasvery little. His deductiblecontribution of $35,000 will still beliable for the 15 per centcontributions tax, but he can ask hisfund to put $29,750 of it into hersuperannuation account. If he keepsup this strategy until he is 67, Helenwould end up with over $830,000 inher own superannuation account ifher fund earned 9 per cent perannum.

Super splitting doesn’t get Mikeout of the 15 per cent contributionstax, but it still has advantages. First,it would enable the couple tomaximise the amount that could bewithdrawn tax-free if either one, orboth, stopped work between age 55and 60.

Unlimited withdrawals are onlytax-free for those aged 60 or more.Those aged between 55 and 60 canwithdraw only the first $185,000 ofthe taxable component tax-free. Byhaving two large funds, they couldwithdraw $370,000 tax-free betweenthem.

If they decided it was appropriate,he could even work until age 75 andkeep up the salary sacrifice/spousesplit strategy if Helen could pass thework test. This would keep him in alower marginal tax bracket, whilefunding a major part of thehousehold expenses through tax-free withdrawals from her super.

The strategy can be especiallyuseful if there is a significant agedifference. If Helen was older thanMike she would reach age 55 or 60before him and so be able to enjoythe tax and access benefits thatcome at those ages. If she wasyounger, their Centrelink benefits

could be maximised, as money insuperannuation is not counted untilthe owner reaches pensionable age.Suppose Mike turned 69 when shewas 61. He could cash out a largechunk of his super tax-free and putup to $540,000 into super in her nameas a non-concessional contributionand, subject to other assets, get apart aged pension and all thebenefits that go with it.

A potential benefit in movingsuperannuation to your spouse’saccount is protection against futurerule changes that may restrict lumpsum withdrawals or put a special taxon higher balances. These types ofchanges won’t happen overnight but,if they did happen, two separatesuperannuation accounts wouldcertainly give you more flexibilitythan having all your money in thename of just one partner.

As always, the key to goodinvestment is flexibility.

Q My husband and I have been toldthat if we draw a lump sum from

our super, we would pay tax on thewithdrawal. Is it true that if wewithdrew the funds as an allocatedpension, we would not have to paytax?

A There is no tax on withdrawalsfrom funded superannuation funds

after the member reaches 60.However, between preservation ageand age 59, there is zero tax on the first$185,000, and 15 per cent plusMedicare levy on withdrawals inexcess of $185,000. Withdrawalsbefore the member reachespreservation age incur a flat tax of20 per cent plus Medicare levy.

Q My wife and I propose giving eachof our two adult daughters a cash

gift of $100,000, and would like toknow of any tax implications for them,or for us. The Australian TaxationOffice website seems to indicate thatgifts may be taxable if they are largeamounts.

A My accountant advises that a giftfrom parents to children out of

natural love will not normally meet thecriteria for taxable gifts according toordinary concepts. The ATO websiteis probably referring to artificialsituations where a person may makea substantial gift in lieu of a contractedpayment that would be liable for tax inthe hands of the recipient.

Just because you can does not mean you shouldBy MARCUS PADLEY

Marcus Padley is the author of thestock market newsletter MarcusToday.

HAVING a smartphone doesn’tmake you an expert in thesharemarket. Here are fourmistakes any rookie can make.

1. Thinking the sharemarket is easy:The technology is fantastic, sexy,smart, powerful, and the marketingis even better. But we all need toslow down. I can cut wood andhammer nails but it doesn’t mean Ican build a house. Someone shouldshout from the rooftops some daythat just because you can trade thesharemarket doesn’t mean you are afund manager. I don’t come homeand do my own dentistry; why does adentist think he can come home andpick stocks? We are putting oursuper funds, our futures, ourfamilies on the line – and with a

natural urge to have a bit of a punt,this is dangerous stuff indeed. Justbecause we can, doesn’t mean weshould. If you have no skill, interest,passion or time you should not betrading the sharemarket from a tramon your mobile. And putting themanagement of your retirement intoyour own hands risks something awhole lot worse. Better you buy aboring managed fund, an index fundor a listed investment company thanput your future in the hands of anamateur: you. Looking after yourown retirement online is also aburden and a responsibility anddone wrong, it can even be divisivefor relationships. Are you sure youwant all that? Or would you preferthe average return and all yourevenings and weekends to yourself?It’s too easy to do the wrong thingthese days. Just because you can.

2. Not selling: If there’s one thing youshould have learnt from the globalfinancial crisis about thesharemarket, it is this. No one evertells you to sell. The best stock in abear market is cash but, amazingly,no one ever tells you to buy cash.This is perhaps one of the mostimportant lessons of the financialcrisis. The finance industry is amarketing machine. It is designed toget you in, not let you out. Have youever tried to ring up a financialprofessional and tell them you wantto sell everything? They will resistyou. They are not in the business offacilitating the extinction of their feeor that ‘‘trail for life’’. The lesson forall of us is that the sell decision hasto be ours and when we decide tosell, we will need resolve, becausethe finance industry will fight us. Soexpect to meet resistance as you try

to execute on it. Bottom line: whenbig turning points come at the top ofmarkets, do not expect anyone tocall. Only you can protect yourselffrom losses. The finance industry isnot designed to help you with that.

3. Not paying attention: If you areusing a financial professional, abroker, financial planner oraccountant and you’re not happywith your financial performance,then let me tell you from someonepaid to take the blame: it’s your fault.The biggest rort is a professionalcharging a fee for setting andforgetting, doing nothing after theinitial investment. If you just leave itin their hands, nothing will happen.Any loss is your responsibility,whoever picked the investments.Pay attention. If you don’t care, whowill? Neglect will cost you a fortune.

4. Denial: Things do not look afterthemselves and do not go away ifyou ignore them. Financial issues inparticular have the ability todepress without address – from notdoing your tax return on time tolosing money in the sharemarket.All these issues have to be clearedout of the mind, not left to plague it.Unaddressed financial issues canbe very destructive.

Financial issues are only afunction of dollars. Address themand address them early. Some of thebest moments come fromconquering the financial molehillsyou have built into mountains.