Question 1: Hi Craig, I would like to pay $10,000 into my son’s super fund.
He is a full-time uni student with no HELP debt etc and he works part-time but earns about $7000 per annum so is under the tax-free threshold. I am working full-time and want to make the payment from my net pay as one lump to earn compound interest for him.
Is there a tax effective way to do this? Can he claim a tax refund for the 15 per cent the fund will charge? Thank you in advance, Regards Mrs P
It’s very generous of you to pay money into your son’s super fund.
The big advantage is that over such a long period the $10,000 will – through the magic of compound interest – grow to a sizeable amount within the very tax-friendly environment of super.
The downside is that he will be unable to access the funds until retirement (except via a First Home Super Scheme withdrawal).
If you contribute the funds from your net pay into his super, then this will be classified as a non-concessional contribution and will not have the 15 per cent contribution tax applied.
And, as your son pays no income tax, there is no point in him making a tax-deductible contribution to super, as the deduction will be disallowed as he cannot offset it against income tax.
One strategy you could consider is for your son to maximise the government’s co-contributions.
To do this, you could provide $1000 to your son who would contribute the money to his own super fund.
As he is earning under $41,112 (2021-22), he would then be eligible for the full government co-contribution payment of $500 after he submits a tax return. That’s almost an instant 50 per cent return on the $1000 – it’s very generous.
You could also look to repeat this in future financial years – i.e. hold $1000 back until the start of the 2022-23 financial year, and have your son make another personal contribution to his super.
He would then be eligible for another $500 government co-contribution (assuming he doesn’t start earning a lot more money next financial year).
Your son’s super fund should also be able to provide you more information and advice on how to best maximise the government’s super co-contributions.
Question 2: My father bought shares before the capital gains tax legislation. He died 10 years ago and my mother inherited all his shares. She destroyed all records of the share purchases. She is now 93 and I have joint power of attorney and will be joint executor of her will. I have tried to sort out this mess but failed. Please advise what I should do.
For capital gains tax (CGT) purposes, your mother is said to have taken ownership of the shares when your father died. As your father bought the shares prior to the CGT legislation (September 1985), the cost base that must be used is the value of the shares on the day of your father’s death.
(Note: If the shares were originally bought after September 1985, then your mother would use the original value of the shares for the CGT cost base – not the value on the date of death).
Therefore, you should be able to look at share registries to find the value of the shares on the day of your father’s death, and subtract this figure from the sale price to work out the CGT liability.
Complicating factors could be if the dividends are reinvested and you do not know how many of each share your mother inherited.
An accountant or your tax adviser should be able to recreate the history, at a cost, if you cannot locate prior records.
Question 3: If I leave my primary residence in equal portions to my four children and allow my wife to live in it until her death, would the children be required to pay capital gains on it from my death?
Sounds like you may be looking at a ‘life-and-remainder interest’, where I assume you are the sole owner of the property and want your wife to have a legal right to live in the home after you die.
Then, when she passes, the ownership goes to your children. This is not uncommon.
From what you have outlined, the very short answer is no, there will be no CGT payable.
However, there are many variables that affect the outcome, including whether the property ever gets rented out, and how it is structured.
I strongly suggest seeking legal and tax advice before setting this up to ensure you obtain the optimal outcome.
Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services
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