'We Inherited Shares With Missing Paperwork'

​I am 62, my wife is 60 and we are both retired. I have $1.5 million in an income stream pension fund, 92 per cent of which is taxable component stemming from employer contribution and salary sacrifice. My wife is on a CSS indexed pension of just over $40,000 a year. Is it worthwhile withdrawing and recontributing until we turn 65 in order to reduce tax payable when the balance of my super benefit passes to my children after both me and wife will have passed away? P.C.

The Tax Office accepts such a recontribution strategy as a legitimate form of reducing tax. So if it is a priority for you to pass on as much as possible to the kids, and not spend it all before you shuffle off this mortal coil, then, yes, you should be undertaking the strategy.

It won't help you, yourself, at all as your super withdrawals are untaxed. However, it could act as a form of insurance in case any future government brings back the Keating model of taxing super pensions as income but with a 15 per cent tax offset (which, to be honest, was a fairer though more complex system of treating super pensions).

Also, since you are likely to live another two to three decades, your children won't know what you've done, so make sure you tell them. Its always better to receive gratitude while alive.

I am 69, no kids, renting and working four days a week. I have little super left as I used it for major surgery and living expenses about 20 years ago. I currently have $11,000 in an online savings account at low interest; $8000 in a Kinetic super account; no credit card or other debts and about $3000 in a transaction account for everyday living and in case of a family emergency in northern NSW. Is it worth me transferring say $8000 into my super and therefore not pay tax on it. I understand I can add to my super for as long as I like. M.W.

You don't mention how much you are earning or spending. But given that your savings are low, even though it has been 20 years since your major surgery expenses, I suspect you are living on what you bring in, so keep working for as long as you can.

Being over 65, you can add to super as long as you have worked 40 hours in 30 days this financial year. It is always worthwhile saving for your eventual retirement and while you can expect a full age pension when that day comes, every little bit you have in super will mean that little bit more for small luxuries.

Remember too that, under the Work Bonus scheme, Centrelink's income test ignores the first $250 a fortnight earned through work. If, as a single person, you earn less than $1940 a fortnight, you might be eligible for a part age pension, in which case, hot foot it down to the nearest Centrelink office!

We are both aged over 70, married and each have more than $1.6 million in our respective accounts in our SMSF. If we have not separated the tax-free pension assets from the accumulation assets prior to July 1, would we have to employ an actuary to calculate what portion of the income is tax free and what portion is taxable? B.J.

With June 30 having come and gone, you will only hear from the Tax Office if you have more than $1.6 million in superannuation pensions. If you each have less than that in pensions, and the rest of your superannuation benefits are the accumulation phase, you will not be hearing from the ATO as the $1.6 million transfer balance cap only applies to benefits in untaxed super pensions.

Your accountant or fund administrator will need to apply capital gains tax relief if any excess pension funds have been commuted to the accumulation phase and the fund will need to be reported to the ATO on an unsegregated basis, that is expenses, taxes and imputation credits etc must be apportioned across your pension and accumulation benefits, which is possibly what you have been doing all along. And yes, in such a situation, you should get an actuarial certificate.

A recently deceased relative has left a substantial share portfolio to be sold and divided among beneficiaries, but transaction records cannot be found. What do we do now? G.L.

Contact the sharebroker that your relative used (there should be correspondence from the broker) and also contact the share registrars for the shares owned.

If no cost base can be established then you are likely to find that the full sale price will be deemed to be a capital gain and taxed accordingly.

I am 57, single and employed full time earning $102,000 before tax and salary sacrifice $2000 a fortnight. I own my home, worth $800,000, and have $258,000 in my First State Superannuation fund. I also have $339,216 in a Commonwealth Superannuation Scheme deferred member account, which was part of a divorce settlement in 2012, and $10,000 in savings. Should I transfer my CSS super fund across to my FSS fund? Am I on track to retire comfortably at 60? I would also like to downsize my home in the near future. Are there any financial benefits to doing this before retirement? C.D.

You only have access to a lump sum from the "taxed component" of the deferred benefit, which stems from member contributions and the employer's productivity benefit. The latter, if withdrawn before age 60, is taxable, though with a 15 per cent tax offset. The default fund (the only alternative investment option to the cash fund) has earned a respectable 10.02 per cent over one year and 9.2 per cent a year over five years, so I would not be in a rush to change.

The employer's untaxed component only increases at the long-term Treasury bond rate and is only payable as an indexed pension. At age 57, you should be eligible to begin this. As a rule of thumb, there is roughly a 10 to 12 year break-even period between starting an earlier, smaller pension compared with a later, larger pension. Since the pension is fully taxable, I would again suggest waiting until age 60 before making a decision.

Even if you budget to live on 75 per cent of your current after tax income, it is unlikely you have enough to meet retirement expenses without eventually going on the age pension. Finally, there is no financial benefit to downsizing now other than you are still working and can possibly afford the inevitable kitchen and bathroom renovation!

George Cochrane

The Sydney Morning Herald

9 July 2017

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