18/06/2015 NCH 0026 - Noel Whittaker · 26 NEWCASTLE HERALD Thursday, June 18, 2015 business...
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26 NEWCASTLE HERALD Thursday, June 18, 2015 business PERSONALFINANCE Split super funds and win NOEL WHITTAKER 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 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: [email protected]. THE attacks on superannuation are ongoing. Labor has already announced plans to increase taxes on super, while my Canberra spies tell me that Assistant Treasurer Josh Frydenberg was openly amenable to changes at a retirement conference in Canberra last week. This is despite promises by his leader, Tony Abbott, that any changes were off the table. One thing is clear – any steps we can take to protect our superannuation should be done sooner rather than later. Fortunately, there is one strategy that is simple, legal, and highly effective; splitting your superannuation with your spouse. It works like this. Once a year you can instruct your fund to transfer to your spouse 85 per cent of your concessional contributions made in that year. Non-concessional contributions cannot be transferred. Your spouse must be under 55 if retired, or between 55 and 65 if not retired. You can be of any age. Just keep in mind the transfer must be completed by June 30. Think about Mike, aged 52. He earns $145,000 a year and is contributing $35,000 a year to superannuation, due to a combination of the compulsory employer superannuation and his own voluntary sacrificed contributions. He already has more than $400,000 in superannuation but his wife Helen, who has a casual job, has very little. His deductible contribution of $35,000 will still be liable for the 15 per cent contributions tax, but he can ask his fund to put $29,750 of it into her superannuation account. If he keeps up this strategy until he is 67, Helen would end up with over $830,000 in her own superannuation account if her fund earned 9 per cent per annum. Super splitting doesn’t get Mike out of the 15 per cent contributions tax, but it still has advantages. First, it would enable the couple to maximise the amount that could be withdrawn tax-free if either one, or both, stopped work between age 55 and 60. Unlimited withdrawals are only tax-free for those aged 60 or more. Those aged between 55 and 60 can withdraw only the first $185,000 of the taxable component tax-free. By having two large funds, they could withdraw $370,000 tax-free between them. If they decided it was appropriate, he could even work until age 75 and keep up the salary sacrifice/spouse split strategy if Helen could pass the work test. This would keep him in a lower marginal tax bracket, while funding a major part of the household expenses through tax- free withdrawals from her super. The strategy can be especially useful if there is a significant age difference. If Helen was older than Mike she would reach age 55 or 60 before him and so be able to enjoy the tax and access benefits that come at those ages. If she was younger, their Centrelink benefits could be maximised, as money in superannuation is not counted until the owner reaches pensionable age. Suppose Mike turned 69 when she was 61. He could cash out a large chunk of his super tax-free and put up to $540,000 into super in her name as a non-concessional contribution and, subject to other assets, get a part aged pension and all the benefits that go with it. A potential benefit in moving superannuation to your spouse’s account is protection against future rule changes that may restrict lump sum withdrawals or put a special tax on higher balances. These types of changes won’t happen overnight but, if they did happen, two separate superannuation accounts would certainly give you more flexibility than having all your money in the name of just one partner. As always, the key to good investment is flexibility. Q My husband and I have been told that if we draw a lump sum from our super, we would pay tax on the withdrawal. Is it true that if we withdrew the funds as an allocated pension, we would not have to pay tax? A There is no tax on withdrawals from funded superannuation funds after the member reaches 60. However, between preservation age and age 59, there is zero tax on the first $185,000, and 15 per cent plus Medicare levy on withdrawals in excess of $185,000. Withdrawals before the member reaches preservation age incur a flat tax of 20 per cent plus Medicare levy. Q My wife and I propose giving each of our two adult daughters a cash gift of $100,000, and would like to know of any tax implications for them, or for us. The Australian Taxation Office website seems to indicate that gifts may be taxable if they are large amounts. A My accountant advises that a gift from parents to children out of natural love will not normally meet the criteria for taxable gifts according to ordinary concepts. The ATO website is probably referring to artificial situations where a person may make a substantial gift in lieu of a contracted payment that would be liable for tax in the hands of the recipient. Just because you can does not mean you should By MARCUS PADLEY Marcus Padley is the author of the stock market newsletter Marcus Today. HAVING a smartphone doesn’t make you an expert in the sharemarket. Here are four mistakes any rookie can make. 1. Thinking the sharemarket is easy: The technology is fantastic, sexy, smart, powerful, and the marketing is even better. But we all need to slow down. I can cut wood and hammer nails but it doesn’t mean I can build a house. Someone should shout from the rooftops some day that just because you can trade the sharemarket doesn’t mean you are a fund manager. I don’t come home and do my own dentistry; why does a dentist think he can come home and pick stocks? We are putting our super funds, our futures, our families on the line – and with a natural urge to have a bit of a punt, this is dangerous stuff indeed. Just because we can, doesn’t mean we should. If you have no skill, interest, passion or time you should not be trading the sharemarket from a tram on your mobile. And putting the management of your retirement into your own hands risks something a whole lot worse. Better you buy a boring managed fund, an index fund or a listed investment company than put your future in the hands of an amateur: you. Looking after your own retirement online is also a burden and a responsibility and done wrong, it can even be divisive for relationships. Are you sure you want all that? Or would you prefer the average return and all your evenings and weekends to yourself? It’s too easy to do the wrong thing these days. Just because you can. 2. Not selling: If there’s one thing you should have learnt from the global financial crisis about the sharemarket, it is this. No one ever tells you to sell. The best stock in a bear market is cash but, amazingly, no one ever tells you to buy cash. This is perhaps one of the most important lessons of the financial crisis. The finance industry is a marketing machine. It is designed to get you in, not let you out. Have you ever tried to ring up a financial professional and tell them you want to sell everything? They will resist you. They are not in the business of facilitating the extinction of their fee or that ‘‘trail for life’’. The lesson for all of us is that the sell decision has to be ours and when we decide to sell, we will need resolve, because the finance industry will fight us. So expect to meet resistance as you try to execute on it. Bottom line: when big turning points come at the top of markets, do not expect anyone to call. Only you can protect yourself from losses. The finance industry is not designed to help you with that. 3. Not paying attention: If you are using a financial professional, a broker, financial planner or accountant and you’re not happy with your financial performance, then let me tell you from someone paid to take the blame: it’s your fault. The biggest rort is a professional charging a fee for setting and forgetting, doing nothing after the initial investment. If you just leave it in their hands, nothing will happen. Any loss is your responsibility, whoever picked the investments. Pay attention. If you don’t care, who will? Neglect will cost you a fortune. 4. Denial: Things do not look after themselves and do not go away if you ignore them. Financial issues in particular have the ability to depress without address – from not doing your tax return on time to losing money in the sharemarket. All these issues have to be cleared out of the mind, not left to plague it. Unaddressed financial issues can be very destructive. Financial issues are only a function of dollars. Address them and address them early. Some of the best moments come from conquering the financial molehills you have built into mountains.
Transcript of 18/06/2015 NCH 0026 - Noel Whittaker · 26 NEWCASTLE HERALD Thursday, June 18, 2015 business...
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: [email protected].
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.
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