Question: I’m retired from work in Australia. I have separate earnings overseas for when I am there. Presently, I earn rent from a property (apart from super pension) and this is my only taxable income. Technically US IRS would tax me on super as well but claim tax credit and it evens out. However, I do not need all that money in my bank account (as moving it to my NetSaving account would not earn much interest).
Is there a way I can pay the rent as my “wages” into UniSuper, pre-tax? I had moved $5000 into Essential Super (investment) but lost $2000 when the COVID-19 crisis brought down stockmarket returns. Can rental earning be moved pre-tax into either super accounts?
Answer: You cannot directly have your rent paid into super pre-tax, as you can with salary, i.e. via salary sacrifice.
However, you can contribute the funds to super, then claim a tax deduction via your tax return. From a tax perspective, this has the same effect as if you could contribute the funds pre-tax.
Once you contribute the funds to super, it’s very important you submit a ‘Notice of Intent’ to claim a tax deduction form to your super fund. This must be done, and acknowledged by your fund, before you can claim a tax deduction on your tax return.
UniSuper provides details and a form via its website.
There are a few other issues to be aware of, including:
- The annual super concessional cap, which limits your pre-tax contributions to $25,000 (although you may be able to contribute more if you take advantage of the carry-forward rule by utilising unused concessional contributions from previous years)
- Currently, people over the age of 67 would need to meet a work test (40 hours work within a 30-day period) in order to contribute to super (so being able to put money into super isn’t an option for everyone).
You should not make any withdrawals, transfers or rollovers from your super until your notice of intent form has been acknowledged by your super fund. Otherwise, the tax deduction may be disallowed.
Pre-tax, concessional contributions/tax-deductible contributions are taxed at 15 per cent by the super fund, so you need to weigh this up against your marginal income tax rate to ensure it is still beneficial to make tax-deductible contributions.
I recommend you discuss your personal circumstances with a tax or financial adviser to assess your eligibility and optimal amount for claiming a tax deduction on super contributions.
Question: I’m unemployed, 59 years old, with health problems. I have $100,000 in super and $200,000 in a managed fund. Should I leave things as is or take $20,000 out of the managed fund per year to add to my super?
Answer: Which structure to hold your investments in, in this case within super, or within your own name via a managed fund, will come down to a number of factors, including investment choice, tax implications, social security rules, access and what eventually you want to do with the funds.
Let’s go through each one.
Super and managed funds will broadly offer you a similar range of different options to invest in.
Although super funds – especially industry funds – have access to ‘unlisted assets’, which have tended to perform strongly over the long term. These are not always available to managed funds.
Investment earnings within a super fund are taxed at a maximum rate of 15 per cent, and once/if they are converted to an income stream this then becomes zero.
15 per cent is generally lower than most people’s individual marginal tax rate. However, if you are unemployed then you may be paying zero income tax.
So investing in super from this perspective would not be worthwhile.
Funds held within super are not counted by Centrelink under the asset and income tests until you attain age pension age, which would be 67 in your case.
So, if you are receiving, or will be applying for benefits such as the JobSeeker payment or Disability Support Pension, super is a good sheltering strategy to maximise your Centrelink benefits.
Managed funds are easily redeemable within a few days, or weeks at most.
Conversely, super can only be accessed once you have met a condition of release. In your case, this could be declaring yourself as permanently retired and no longer looking for work (if that is your intention).
What your plans for the funds are
Are you drawing down and living off any of your managed fund income or capital?
Do you currently receive a Centrelink payment?
What are your long-term plans, i.e. do you want these funds to supplement your age pension once you hit age 67?
Answers to these questions are crucial in determining which is the best option.
As you can see, the answer is not straightforward and it will depend on your personal circumstances.
That is where a financial adviser can be of assistance.
Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services.
Disclaimer: 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 your objectives, financial situation or needs.
Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.
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