Act early to cut ‘death tax’ on superannuation NOEL WHITTAKER

I AM 68, retired and on an age pension with my husband, who is 78. We own our home and car and I have a superannuation fund of $85,000 from which we draw $175 per fortnight along with our pension. We have left our estate to our two sons equally. When they inherit our home, will the super money that’s left be taxed?

The taxable component of your superannuation fund will be taxed at the 15 per cent rate plus Medicare levy if left to a non-dependant. However, I wonder why you would need to keep a relatively small amount such as $85,000 in the superannuation system where it is subject to fees and liable to the death tax you mention.

Take advice about withdrawing it now and investing in your own name. If it is your only financial asset, there would be no income tax payable on the earnings, and no death tax to worry about. THERE seems to be a difference between industry super funds and commercial ones in their charges for transferring, to an accumulation account, any excess over the $1.6 million pension cap. I have discovered that Unisuper will transfer such an excess to matching investment funds without additional charge. On the other hand, Colonial First State advises it will impose “buy/sell” spread fees of up to 0.65 per cent of the amounts being transferred.

Furthermore, neither fund offers facilities for nominating automatic monthly or other regular payments out of accumulation accounts to correspond with the pension payments. A separate request for payment must be made for each payment – accumulation accounts are for saving for a pension, they say!

Colonial First State advises there are no buy/sell fees applied on those transfers, and regular monthly transfers can be set up. It may be worthwhile asking the person who supplied the information how they came by it.

If it is your only financial asset, there would be no income tax payable … and no death tax

WE have had an investment property since 1992, which we purchased for $125,000. This will obviously attract CGT when sold and the current market value is $690,000.

I have no reason to sell it at the moment but will offload it closer to my 65th birthday, thereby depositing the net proceeds into super. Are there any benefits or reasons to sell earlier and are there any ways to reduce CGT in retirement?

Just keep in mind that you cannot make after-tax contributions once your balance is $1.6 million in super – and deductible contributions are limited to $25,000 per person per annum, and are subject to 15 per cent contributions tax.

You can certainly reduce the impact of capital gains tax by making deductible contributions up to the $25,000 limit – but keep in mind that it includes employer contributions. Therefore, it makes sense to wait until you are not working if you believe you can benefit from this strategy. Noel Whittaker is the author of Making Money Made Simple and other finance books. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: noel@noelwhittaker.com.au