Dollars & Sense: Ways to maximise a couple’s super

Our financial adviser examines if using the super bring-forward rule will benefit a couple, and the tax rules on inherited property.

The Dollars & Sense column examines a couple’s superannuation strategies. Artwork: Emilia Tortella

Welcome to our Dollars & Sense column. While in no way is it formal financial advice, it is a way to stress test your decision-making, to find out potential financial implications before you make your choice, and to discover more about structuring your affairs so that your money works harder for you. Submit questions to ­[e-mail].

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I am aged 66 and have $1.1m in my super in accumulation mode. My wife has two term deposits of $500,000. I want to use the bring-forward rule and add about $300,000 to reduce her tax, increase my super dollar cost average and get better interest than her term deposits. My wife’s concern is that if we need to withdraw some super for my daughter’s wedding in a few years we might not be able to. I have no plans to retire at present.

Warwick

Being over the age of 65, your superannuation should be unrestricted and unpreserved, meaning you have full access to your investments. I am not clear how old your wife is and whether or not your wife has her own superannuation fund.

You also mention that you are in accumulation phase. One of the benefits of super is that once you are over the age of 60, you can create a pension that can pay you an ongoing income stream.

Once you are over the age of 65, in a pension, your funds earnings, growth and money to you are all tax free, so technically there is possibly no better place to hold your money. Superannuation in accumulation phase is still taxed at 15 per cent. However, if your wife is older than you, and receiving some age pension this may be why you are in accumulation.

The bring-forward cap is currently $360,000 and you need to ensure that you meet the criteria, that is, you have not exceeded your non-concessional contribution cap in previous three years.

Whenever you are investing you need to map out the goals, the amount required and the timing. Then it is about managing accessibility and appropriate investment risk that meet the goals.

Superannuation and pensions allow you access to a range of investments, such as defensive investments in cash, term deposits, gold, bonds and growth investments in Australian, international shares and property.

You mention that you need to withdraw funds for your daughter’s wedding. I am not sure how much that is, but when goals are short term it is important that those funds are not invested in a volatile investment in case markets fall and you are forced to sell at a lower value.

If you wish to invest in your superannuation, you could consider allocating that amount very defensively in your superannuation.

Alternatively, depending on your wife’s age and financial circumstances you may invest that in your wife’s superannuation, or in your wife’s name outside of superannuation if it is a much smaller amount and therefore the tax becomes less of an issue.

It may make sense to do a combination of all of these ideas.

Capital gains tax on inherited properties

In my mother’s will, she has left my daughter and I her unit (her principal place of living). She also left my sister and I an investment factory. Will there be capital gains tax to pay on the inheritance of both these properties?

Wayne, Gold Coast

If the unit has not been rented out for any period of time, then technically it should meet the principal place of residence 100 per cent exemption, which means no capital gains issues providing you meet the “two-year rule”.

The rule states you must dispose of the property within two years to avoid any capital gains tax or alternatively it becomes your principal place of residence. The cost base is the value of the property at the date of death, not the value after two years.

You can apply for an extension but only under certain circumstances will that be granted. You can check the ATO website for more information.

Your issue may be more about joint ownership with your daughter. Will this become your new home? How does this work with your daughter’s long-term plans for her own home?

I am assuming the investment factory means a factory that operates out of a commercial property, and your mum is the owner of the commercial property, not the business operating there. On that basis, if this has been rented there is likely to be capital gains tax upon sale.

Things to consider are: Does the property have a capital gain, i.e. has it increased in value? What structure is the entity in? Is the property eligible for any small business concessions? Do you both/or one of you wish to keep the property or sell it? The impact of tax may be different for both of you. Do you/both of you plan to sell now or later? If you do plan to sell immediately, you could consider if it makes sense to sell it in your mum’s estate, rather than add this capital gain to you and your sister’s taxable income.

To give you the option to manage capital gains tax you may benefit from receiving the investment property in a testamentary discretionary trust (TDT), but this will require your mum to amend her will.

I am assuming that your mum is still with us and there is time to make an adjustment to the will if required. I would suggest the combination of financial adviser, accountant and estate planning experts meet with your mum to discuss the pros and cons of a TDT.

This assumes your mum also has the mental capacity to amend her will, as well as the desire to do so. In my experience, once clients understand the benefits, they are more willing to make changes.

With the right guidance your mum’s legacy will hopefully be stretched further by legally reducing tax.

Helen Baker is a licensed Australian financial adviser and author of Money For Life: How to build financial security from firm foundations. Follow her at @onyourowntwofeet.

The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all relevant circumstances. Before relying on any of the information, please ensure that you consider the appropriateness of the information provided with regard to your objectives, financial situation and needs, and seek independent professional advice.