What should our nephew do with our $21,000 gift?

Our nephew turns 21 early next year, and we will be gifting him $21,000 to mark the occasion. Can you recommend somewhere we can park/invest this money on his behalf until he is ready to use it? I anticipate he will put this money towards a deposit on a property in the next 5-10 years.

What a great idea, and a lucky nephew! If you are confident he will use it to eventually buy a home, the best bet would be to deposit it into his super fund, and he can then use the First Home Super Saver scheme to get the money back out when he is ready to purchase. This strategy has several advantages.

Locking your gift away inside the First Home Super Savers scheme would be a smart move for your nephew.Credit: Simon Letch

Firstly, it means he won’t need to include the investment earnings in his personal tax return. The earnings will be taxed at 15 per cent within his super fund, which is likely to be attractive compared to his personal marginal tax rate, particularly as he progresses in his career.

Having these savings in super also mean they aren’t easily accessed and diverted to other purposes. His super is likely to be in a fund option with a leaning towards growth assets, and so earnings will on average be better than cash in the bank, albeit with a little volatility year to year. Given a 5-10-year time frame that volatility is fine.

And lastly, he might even get a bonus $500 from the government under the co-contribution rules. Note there is a limit of $15,000 per year that can be recognised under this scheme, so you may need to spread your gift across two financial years.

If he might want to use the money for some other purpose, then super is out. In that case, the investment would very much depend on his time frame. For example, if he was planning to use the money to travel overseas, and expected to head off in the next year or two, then it would be best for him to keep your gift as cash in the bank.

Alternatively, if his plans meant the funds would be left undisturbed for many years, then he could invest in a fund, either directly with a fund manager, or on the stock market via an Exchange-Traded Fund (ETF).

Hi Paul, I am soon to reach pension age. Can you tell me how much super I can have before it affects my pension?

Centrelink will run an asset test and an income test, and whichever produces the lower entitlement, that is what you will receive. This being the case, there is no specific amount of superannuation that you can have. Your super savings are just one part of your total assets.

The asset test threshold for home owners to receive the maximum pension is $314,000 for singles and $470,000 for couples. For non-home owners the numbers are $566,000 and $722,000.

In addition to your super balance, all your other assets, except for your home, will be included. That includes a value for your contents, and your car.

As mentioned earlier, an income test will also be run, and your super savings certainly have a bearing here. However assuming you are fully retired, more often than not it is the asset test that determines your entitlement.

Note that if you exceed the figures above your entitlement reduces until eventually, you receive nothing. It’s a fairly gradual taper though, so I wouldn’t be too concerned if you are a little over.

Paul Benson is a Certified Financial Planner at Guidance Financial Services. He hosts the What’s Possible? and Financial Autonomy podcasts. Questions to: [e-mail]

• Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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