Ask Noel: salary sacrifice, mortgages and more

I am 68 years old, on a part pension, but still work as a casual. I earn about $15,000 a year. I contribute to a super fund where I work, but is it advisable to salary sacrifice the small amount I earn?

I wouldn’t recommend salary sacrifice to super because such contributions lose a 15 per cent entry tax, while on your income you should be paying little or no tax. A better option may be to make a $1000 non-concessional contribution and seek the $500 co-contribution from the government.

I am 60 and my husband is 57. We own our home valued at $550,000 and we have a holiday home worth $280,000, on which we owe $125,000. The holiday home is let out during peak periods and we use it in the off season. My husband works full time and plans to work for at least five more years. I work part time. I have a small super balance of about $82,000.

We are thinking of retiring to the holiday house when my husband retires and the house will need to be updated. Should we pay the $82,000 off the loan? At present the loan should be paid out in five years eight months. Should we borrow $150,000 to update and extend the house and keep the money in super, while I keep working part time?

With the house we own plus my husband’s super at the time of retirement we should have about a million dollars.

I think it’s prudent to work as long as you are happy to do so, which is why I would rather see the money grow in super rather than be withdrawn to pay off a loan on which part of the interest is tax-deductible. You are in a good position and should be able to comfortably afford the repayments on a loan of $150,000 to renovate the home. I suggest you do it sooner rather than later to take advantage of today’s prices. When you eventually downsize to the holiday home investigate the new downsizing provisions which may enable you to add part of the proceeds to your super.

My husband and I are 45, have combined earnings of $260,000 with total super of $200,000, and we have three children. We have a $600,000 mortgage on our residence, which is valued at $950,000. We could not sell our previous home and the rent completely covers the $525,000 mortgage repayments. We can afford the mortgage at current low interest rates, however we are wondering whether to keep the previous home or to sell. If we sell, we can reduce the mortgage on our current home, but will no longer hold it as an asset. If we keep it, we are paying a lot of interest which could negate any profit if we sell in 10 years.

I guess your best course of action depends on what you see as the potential for capital growth in the original home. You state that it is positively geared, so the only cost to you in holding it is the interest you are paying on your present loan, which would be reduced if you sold the other house. An easy way to do the calculations might be to work out how much you would net if the house was sold and the mortgage reduced. Then you could compare this figure to what you think you can achieve in capital gain from the house if you kept it.

We are having some difficulty in understanding the cashing out rules on the death of a spouse where both have $1.6 million each in pension accounts together with substantial accumulation accounts. What has to be ‘‘cashed out’’ and must the amount be in cash which would require our fund to sell shares or property, or can it be a paper transfer of shares or property to the surviving spouse’s non superannuation personal account?

The bottom line is that under the new provisions the maximum amount in superannuation that can be transferred from the deceased to the super account of a beneficiary is $1.6million. If the superannuation account of the deceased is in excess of this the money is simply paid to the beneficiary who cannot contribute the money to their own superannuation account. If the beneficiary is a spouse, or a dependent, the entire sum would be tax-free, if a non-dependent there is a death tax of 15 per cent plus Medicare levy on the taxable component. These payments can be made in specie or in cash.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature. Readers should seek their own professional advice before making decisions. Twitter: @noelwhittaker