Ask Noel: super and pension strategies, capital gains and more

My wife and I, ages 71 and 67, are planning to retire next year. I would very much appreciate some basic clarification regarding Centrelink treatment of super and bank deposits. Would we receive a higher pension if our money was left in our super or put into a bank fixed-term deposit?

For the purposes of eligibility for the age pension it does not matter whether the money is held in superannuation or in bank accounts because both will be subject to the deeming rates. It’s really a matter of taking advice as to what strategy will give you a return that fits your goals and your risk profile.

I paid capital gains on a property sale this financial year but have now heard that I could have avoided capital gains tax if I had rolled the proceeds into super. I am 68. Is this correct if I work for a short while to become eligible to contribute? Can I amend my tax return if needed?

It is not possible in this country to avoid capital gains tax by rolling the proceeds of the sale into superannuation. However, as capital gains tax is assessed by adding the net gain to your taxable income in the year the sale contract is signed it is often possible to reduce the impact of capital gains tax by simultaneously making a deductible contribution to super. The contribution must be made in the year the capital gains tax is triggered. You say the sale was made in this financial year, so if you can pass the work test, which involves working 40 hours in 30 consecutive days you should be eligible to make a contribution to super of $25,000 and claim a tax deduction. Make sure you talk to your accountant first because it’s important to get this right – keep in mind that deductible contributions incur an entry tax of 15 per cent. You mentioned the possibility of amending your tax return – if the sale took place in the current financial year it would be most unlikely your tax return would be done by now.

I am 75 with $900,000 in our SMSF. My wife is 56 with $100,000 in our SMSF. If I take out $350,000 and invest it outside super, and withdraw a further $350,000 which my wife can contribute to her super I would be left with $200,000 in my super. She would then have $450,000 in her super and pay just 15 per cent tax on any earnings. Could I then get a part aged pension? I reckon I could earn 8 per cent on my investments with my $350,000 (outside super) and 8 per cent on the investments inside my super.

Money in superannuation is not assessed by Centrelink until the member reaches pensionable age. Therefore, money held in superannuation by your 56-year-old wife would be exempt when your assets are being considered for pension eligibility. Just keep in mind that the maximum non-concessional contributions that can be contributed by your wife over the next three years would be $300,000. It’s really a matter of taking advice and doing the sums.

We are aged 93 and 87. Our only income is from our $1,100,000 share portfolio. If Labor’s scheme gets up our income would reduce by $35,000 less adjustment for tax. Capital gains on shares is net $470,000 included in value. To qualify for a part pension to retain franking credits, we are considering donating about $300,000 to tax deductible organizations immediately instead doing it on death by bequests. This would offset any capital gains while reducing capital. Is it possible to do this?

Unfortunately, the flaw in your proposed strategy is that all donations to charitable organisations come under the $10,000 a year, maximum $30,000 over five years, gifting rules. The fact that you can claim a tax deduction does not affect treatment by Centrelink. I suggest you just continue spending money as needed, and make tax-deductible donations sooner rather than later so you can enjoy watching the benefits such donations bring to the recipient.

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