You Can Bank On Dad, But Super Banks On Employees

Sun Herald

Sunday October 29, 2006

George Cochrane

Even students need to be in the workforce to claim the super co-contribution, George Cochrane writes.

I AM studying arts full time at university. Apart from the "Dad Bank", my only other source of income is the youth allowance. If I make an after-tax contribution of $1000 to my super, will I qualify for the $1500 co-contribution? What is this "10 per cent rule" I keep reading about and how does it affect the co-contribution? DP

The Government offers a super co-contribution of up to $1500 for employees who annually earn below $28,000 and make undeducted contributions to super up to $1000.

For those who earn above this level, the co-contribution phases out by five cents for every dollar earned until it cuts out completely above $58,000.

To receive one, you cannot be self-employed or retired. That is, you cannot be in a position to claim a personal deductible contribution. A self-employed person is one who earns less than 10 per cent of total income (the "10 per cent rule") from work that results in an employer having to make a superannuation guarantee contributions.

Relying on "Dad Bank" implies you are not employed and thus you cannot claim a co-contribution this year. However, the youth allowance permits you to earn up to $236 a fortnight without affecting its income test.

Even an arts student should be able to get some part-time work that would allow you to claim the youth allowance and also save $1000 over a year to contribute to super.

Departing payouts restricted

MY husband and I arrived in Australia in June 2000 on one-year working visas. We ended up staying and became Australian citizens in April 2005. Now we have made the decision to return permanently to Ireland in April next year. My question is, can we cash in our super and take it with us? My husband will have approximately $40,000 by March 2007 and I will have approximately $26,000. We have heard conflicting stories on this topic. An accountant told us that we could take our super with us if we proved we were making a permanent move. I later called my super fund and they said we couldn't. We are so confused. VF

A Departing Australia Superannuation Payment is available to temporary residents who leave the country. It does not apply to Australian or New Zealand citizens, permanent residents or other individuals who have the option of retiring in Australia.

You would need to leave the money here until you achieve one of the conditions of release for preserved benefits - turning 65 or retiring after age 60 (the preservation age is rising to 60 for people born after June 30, 1964).

Assuming you are young and your time horizon is quite long, leave the money in your funds' "growth" investment option and let it build. Anyway, after a summer or two in the Irish rain, you might hanker for a drought and return. It often happens.

Rule changes on the horizon

I AM single, retired, own my home and have an allocated pension. Because of the mandatory minimum amount of allocated pension that I am forced to take, I find that my income is greater than I need. I'm saving the excess in the highest interest online account available, but would prefer to have it in the pension fund. My concern is that, from January 1 this year, new applicants for an allocated pension have been able to stipulate a lower minimum mandatory amount of income. I fail to understand why this was not also changed for existing pensions. It is frustrating to have saved for many years in order to fund your own retirement, only to have to face ridiculous rules. AG

In the past, the Government's philosophy has been that your super is funded as an opportunity cost by taxpayers, and it is in their interests that you use your benefits and don't leave it as a tax-sheltered inheritance for the next generation.

Presumably in the interests of simplicity, the Government has reversed this policy and said that, from July 2007 onwards, no one needs to take a super benefit out of their fund if they don't want to, at any age.

This of course means that in roughly eight months you won't have any complaints.

Interest deductions on loans

I HAVE an investment loan totalling $250,000, of which $160,000 has already been used to purchase an investment property. The balance of the loan is sitting in my bank account ready to use. Is it possible to salary sacrifice, let's say $500 per week, and then withdraw the same amount from my account balance and deduct the interest on that withdrawal as a tax deduction? SY

No, not unless the amount you withdraw as a loan is placed into an investment designed to produce an assessable income.

In other words, you generally only get a deduction for paying interest on a loan when the borrowed money earns taxable income.

No tax on funded schemes yet

I WAS formerly employed by a Commonwealth Government statutory authority and receive a Commonwealth Superannuation Scheme pension. My former employer made contributions to the scheme each financial year of amounts ranging from 15 per cent to 22.5 per cent of annual salaries. This was in addition to the compulsory employer superannuation levy. Does this fact make any difference to the tax status of my pension after July 1, 2007? Although the pension is paid out of consolidated revenue, I believe that it is in fact being funded by the contributions from my former employer. Also, could you please advise whether or not there will be a dollar limit on the proposed 10 per cent tax offset? JM

You don't mention which statutory authority so it is difficult to answer. The general concept is that money paid from a funded super fund, which has been paying its 15 per cent tax, will be tax-free from July 2007.

Pensions paid out of consolidated revenue (ie from an unfunded source), will be fully taxed until mid-2007 and will then carry a 10 per cent tax offset. I know of no dollar limit on the offset. Contact your former employer to check your personal situation.

? If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, 2026.

Helplines: tax 132 861, bank ombudsman 1300 780 808, pensions 132 300.

© 2006 Sun Herald

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