Finance Your Budget Ask the Expert: Negotiating capital gains tax and exploring joint superannuation

Ask the Expert: Negotiating capital gains tax and exploring joint superannuation

investment property
Licensed financial adviser Craig Sankey answers your burning finance questions. Photo: TND
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Question 1: How can I set up a joint super account so money in my super can pass to my partner’s super if I die first, or vice versa?

Although some industry participants have called for ‘joint’ superannuation accounts, currently accounts can only be held in the name of one individual.

Super is not an ‘estate asset’, which means it is dealt with outside of your will.

Therefore, it’s important that you tell your super fund who you want to leave the proceeds of your super to if you pass away.

You have the following options:

  • Make a Binding Nomination – This is legally binding on the fund, meaning they must pay the proceeds to whom you have nominated. But it’s important to note that some of these nominations expire after three years
  • Make a non-Binding Nomination – This guides the fund on who you want the funds to be left to, but you give the fund final discretion.

It’s also important to consider that events like marriage and divorce do not alter the above, so you must remember to review these nominations regularly.

If you have converted your superannuation into a retirement income stream, then you can make it ‘reversionary’, so that it automatically reverts to your partner upon your death, should you die first.

There are rules around who you can nominate as a beneficiary and reversionary.

Your super fund will be able to assist you in updating your nominations.

I also recommend speaking to a lawyer about having wills drawn up for your estate assets, and to ensure your will and your super fund beneficiary nominations are consistent with one another.

Question 2: I have a wholly paid-up insurance policy sitting in my old super fund valued at approximately $14,000. According to the fund manager, I am able to withdraw those funds at any time. I do not have an income stream from any superannuation and I have been receiving a Disability Pension for around 10 years. If I withdraw the funds to reinvest, will that affect my pension in any way?

By a ‘paid up insurance policy’, I take it you mean either a Whole of Life or Endowment policy. These policies have an insurance element and an investment element. They were popular in Australia many years ago, but these days individuals tend to keep their investment and insurance policies separate.

From a Centrelink asset test perspective, if the policy is within super and you are under the age of 65, it is not currently being assessed, so if you withdrew the funds and placed them in your bank account, the $14,000 would become an assessable asset. If you are already 65, then the surrender value would be asset tested already.

Under the income test, this is not currently assessed.

If surrendered, the ‘growth’ of the policy (surrender value less contributions and premiums paid) would count under the income test for the next 12 months. For example, if the growth was equal to $6000, then $500 a month over 12 months would be included in the income test.

Depending on your other income and assets, the withdrawal of this policy may negatively affect your disability pension. However, it may also have no impact if you have little other income or assets.

I suggest you contact Centrelink to see how close you are to the asset and income limits.

Question 3: I have an apartment on an interest-only loan in Melbourne. The value has dropped to around $300,000 and the loan is $350,000. I’ve reduced the rent to ensure I have enough income to cover the mortgage repayments.

I’m trying to sell the apartment as I will be retiring in May 2023. I’m hoping that any loss on the investment can be claimed against tax whilst I’m still working (current and future).

If I wait until I retire, I won’t be paying tax, so I assume there will be nothing to offset against the loss. I have approximately $500,000 equity in my home but still have a mortgage, which will have to be cleared with my superannuation. Any suggestions?

You have indicated that you wish to sell your investment property (apartment) whilst you are still working, and as you suspect it will make a capital loss, offset this loss against your other taxable income.

Unfortunately, you can only offset a capital loss against a capital gain, not against other taxable income such as salary or wages.

The good news is that you can carry forward the capital loss indefinitely until you have a future capital gain that you can offset it against.

But while tax is an important consideration, so is cash flow, and the most important consideration is whether the apartment will be a good long-term investment and achieve a future capital gain.

This should be the key consideration in deciding when to sell your apartment.

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. 

The New Daily is owned by Industry Super Holdings