I have $1.8 million total in my self-managed super (including my wife's super), and I cannot figure out what happens after the new restriction of $1.6 million in super funds. Does it mean that I will be taxed on the excess drawings in pension mode, or can I just retain the excess and not pay any tax on the amount exceeding $1.6 million. I need someone like you to unravel what seems to be fairly complex.
The proposed limit of $1.6 million is per person. This means a couple can have up to $3.2 million in superannuation, so you and your wife would be fine with a balance of $1.8 million between you. For anyone who will breach the limit, the proposal is that on June 30 next year any money in excess of $1.6 million per person will need to be removed from the zero tax pension mode. The excess can be simply rolled into another accumulation superannuation fund, or segregated into accumulation mode inside your existing self-managed fund. If you have few financial assets outside super the simple solution may be simply be to cash it in tax-free and invest in your own name – there should be no tax payable on its earnings given the first $18,200 per annum is tax-free for an individual.
I have a superannuation balance of $2 million of which I draw down 5 per cent each year as required. I am a self-funded retiree aged 68 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 in to line with the $1.6 million limit – will they lose access to the CSHC? Examples are placing money in to a cash account with a bank, or placing the excess into an accumulation fund with the same super fund. If so, this is an appalling outcome, as we are being forced to make changes on the monies saved through hard work and diligence during our working lives, and that it seems morally wrong to lose an entitlement when the rules have been changed by government, only to suit government and their policies.
My understanding is that it is the existing pension that is grandfathered and reducing the balance to $1.6 million would not in itself trigger any issue with CSHC. But there could be an issue if the $400,000 excess is invested in your own name and thereby increases your assessable income above the threshold for CSHC.
If you stop and restart the existing grandfathered pension you may have an issue as it will be a new pension. Anybody in this situation should take advice before they act, but don't rush. We have until next June to think about strategies.
Can I save the rent I derive from my investment property into the offset account for my residential property to reduce the non-tax deductible interest I am paying for the mortgage on my residential property, without incurring any issues with the Tax Office?
The other scenario is this: when I have paid the mortgage on my residential property, can I save the rent I derive from my investment property A into the offset account for my investment property B, given that the interest rate in my investment property B is higher than that of A, without incurring any issues with the Tax Office? The idea is to minimise the interest I am paying for the mortgage on the investment property that has the higher interest rate.
Just think of an offset as if it were a normal savings account. Therefore you can deposit and withdraw money into it with no adverse tax consequences. The problem starts when people start to deposit money into their line of credit loan investment accounts and then withdraw money for a private purpose – because the deposit is treated as a repayment of the debt and the withdrawal is treated as a new loan, the investor can find themselves losing the tax deductibility of the interest.
An adviser of my acquaintance suggests moving my entire super portfolio from a share-based position to cash for a minimum of six months. I am reluctant to do so. Would you care to make a comment on this matter?
Your adviser is trying to be a market timer – that is a person who says "stay in the market when it's healthy and to get out of it when it's sick". Warren Buffett would say the opposite "get out of the market when it's booming, and buy when it's sick". Of course, the advice you have been given may be correct, but experience has shown that most people who try to time the market do very badly over the long haul. My advice has long been to pick a good asset allocation and stick with it through good times and bad.
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: noel@noelwhittaker.com.au
