March 10, 2025 • 32 mins
Finally, after much flipping and flopping the government has decided to go ahead with a pre-election budget on March 25: What will it mean for your investment plans?
James Gerrard of financialadviser.com.au joins James Kirby in this episode.
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In today's show, we cover:
- What's the Coalition deal on tapping super to buy a home?
- How the ALP plans to offer a 20% discount on student debt
- Could financial advice be made fully tax deductible?
- The reality of taking out a reverse mortgage
- Why advisers are sceptical about annuities
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:09):
Hello, and welcome to The Australian's Money Puzzled podcast. I'm
James Kirby. Welcome aboard everybody. We have a lot going
on all of a sudden. First of all, we have
a budget now you might say unexpectedly, that is, the
government flip flopped on this, but has finally settled on
a date which is March twenty five, not far away.
Keep that in mind, folks. And we have an election,
(00:30):
of course, which will come up soon after that in May,
and they have already, of course, both sides of Parliament
have started handing out the goodies here in terms of election,
and there are some really important distinguishing features between the
two parties here. In fact, it's in this area of
investment and housing, student loans etc. That some of the
(00:52):
real distinction in party policy is emerging. So I think
it's going to be very important in the weeks ahead,
as in we need to always pay attention to budgets
because we can get things, we can get things taken away. Similarly,
the same goes for elections, and any investor should be
(01:12):
across what's going on to get across what's going on.
My guest today is James Gerard from Financial Advisor dot
com dot you awai, James.
Speaker 2 (01:22):
I'm doing great. Thanks for having me on today, James.
Speaker 1 (01:24):
I'm delighted to hear this is a budget. But then
I'm one of those sort of strange people who enjoys budgets.
I really do. It's a bit like going for a
long run. Don't necessarily enjoy it while you're doing it,
but afterwards you say that was good. Now I'm really
across everything, and for me at least, it's like a
reset for the year. I'm just looking at. First of all,
(01:45):
the twenty fifth is the date, and that, of course,
by nature will be a pre election budget. It gives
the incumbents the ALP chance to show the wide republic
where public finances are at and I mean there's raw
record of that all the time, but it gives them
a chance to actually a moment, if you like, in
front of the spotlight, to put their case as to
(02:08):
the standings of the broader big picture. But then there's
also measures, which is what we are always interested in.
What might they do, what might they aspart to do,
what might they promise going into the future. And there's
a lot going on. One of the things I want
to talk to you. First of all, was about that
distinction on terms of what parties are offering. One big
(02:28):
distinction is about super, really simple. The Coalition will let
you use your SUPER to buy a home. The ALP
will not let you do so that's a major distinction
between the two parties. I don't want to get too
political in this. It's hard to cover an election without
being political, but I don't want to get party political
on this. I want to look at it from an
investor's point of view. How powerful do you think that
(02:50):
tapping super, allowing people to tap super might be, James.
Speaker 2 (02:54):
It's really powerful, particularly for people in Sydney, Melbourne, Brisbane
where property prices have gone up substantially over the past
five years or ten year period, and it's really tough
for these younger people in their twenties, thirties, even forties
to get into the property market where it's over ten
years of the average income to buy the average property,
(03:15):
and statistics show that you need to save at least
ten years work for savings to be able to get
that first property. So being able to fast track that
by fifty thousand dollars per person, So if you're a
couple that's one hundred thousand dollars that you can grab
from your super account towards a deposit. It'll go a
long way. But then there's the well, what does that
mean on the other end, where we're missing out on
(03:36):
between fifty to one hundred thousand dollars of capital there
that could have been compound in a way earning eight
percent nine percent return over thirty forty years until retirement.
That means that there'll be less money there for retirement.
But then I guess the argument that the way that
I would think about it is that it helps you
achieve this goal to get into the property market sooner.
You pay down your mortgage sooner because you're off the
(03:56):
rental ladder sooner, and then when you're in that sort
of five to ten year period before retirement, that's when
you can put back extra money because you don't have
the mortgage anymore, and that's where you can replenish the
fifty thousand plus the returns that you would have had
along the way.
Speaker 1 (04:12):
I mean, I have to say I'm a reluctant supporter
of it for the simple reason that I know a
policy wise, it's not a great idea housing should fix
housing super should fix SUPER. However, I'm pragmatic. Here's the thing.
All the tax breaks in the system for the individual
hinge on owing your own home capital gains tax exemption,
(04:33):
which is a big CGT exemption for homeowners. You don't
get to benefit from that if you don't buy your house.
It goes through all your life right through too. When
you retire, you can get the family home is effectively
excluded from assessment of access to the pension. So the
point I make is that it's not just about buying
a house. It's about including yourself and the benefits of
(04:54):
the tax system. And I don't think the tax system
is going to change, So yes, I think there will
be more support than people realize. Important point which I
don't see very often covered. If you go in and
look at the actual policy. Yes, you can take fifty
thousand dollar of your SUPER towards the home, assuming you
have fifty thousand in there. The second thing is you've
got to put it back when you sell the house,
(05:17):
assuming you sell the house. But that's a proviso in
there which hasn't had a lot of attention. So from
a policy perspective, it's not quite open the doors and
let all the superflow out. It has to be the
amount taken out has to be returned in the fullness
of time when you sell the home. We might get
some more detail on that in the election. On the
other side, then, James, I think the outstanding budget election
(05:38):
carrot from the ALP, I think at least is the
HEX deal. It's so simple. You just say to someone,
if you vote a LP, if you return the government,
you get twenty percent off your HEX. I mean, it
is just so simple and so clearly a budget giveaway.
It's outrageous almost in its simplicity. But I think for
that portion of the population, which by the way is
(06:00):
the big portion, right, so the gen X and the
millenniums combined are now bigger than boomers for the first
time ever, So I think that one may really work
as well. Do you think the HEX one will cut through?
Speaker 2 (06:12):
I think it will. I'm making an assumption here. I
feel that the younger generation will swing political parties. They're
less set in their ways election to election, so something
like this, which on average will save them about five
thousand dollars with that twenty percent of their HEX debt
wiped away, is really appealing and Also, the Labor Party
have another proposal around that, and that's where they're increased
(06:34):
or they're proposing to increase the threshold of mandatory hex repayment.
So currently, if you earn less than fifty four thousand
dollars per year, you don't have to pay anything back
of your HEX debt. But the Labor Party are proposing
to increase that to sixty seven thousand dollars per year.
So that means that someone on seventy thousand dollars per
year will will save about thirteen hundred per year in
(06:55):
mandatory hex repayment. So that also helps I guess from
the cost of living side of things, where people won't
be compelled to have to pay this hex stet, that
they can earn more money and still have that hexit
there accumulate at a low indexation rate every year.
Speaker 1 (07:10):
This is one of the things that might happen is
that they'll copy each other. I mean there's a lot
of that going on. One party announces something and the
other party says, yes, we'll do that too, which is
a strange sort of mechanism which pushes the parties into
the center. But there are some things they can't copy,
so in theory, at least with the HEX at least
the Coalition might be able to respond on that, but
(07:31):
the ALP is probably never going to be able to
respond on allowing you to tap your super for a
home deposit because of the importance of the entire supersystem
to them, the SGC to them, the industry funds to
them as well, and that is a political point. But folks,
I thought it was really important to get up to
speed on what was going on around budget and election
(07:52):
that we know so far, and we'll take a break
and then we look at what also might happen back
in a moment. Hello, Welcome back to The Australian's Money
Puzzle podcast. I'm James Kirby talking to James Girard of
(08:15):
Financial Advisor dot com dot a regular guest on the show,
contributor of course to The Australian's Wealth Section. So what
else might we expect anything else going around in your
wonderful world of financial planning? Three million dollars tax for super.
If they get back in, they're going to bring that
back in again, aren't they. They're going to have a
(08:36):
second crack at that.
Speaker 2 (08:37):
Ye, that's right. That legislation the Division two ninety six
legislation has gone through the lower House successfully and it's
in the Senate at the moment, and there's a lot
of debate. So the Coalition don't really like it. The
crossbenches have questions about it, and it hasn't been scheduled
for a vote before the election, and it looks unlikely
that will go through to a vote before the election.
(08:58):
With the AOP win, that push it to have that
go through, which is that extra tax above three million dollars.
But if the Coalition win, I'm pretty sure they're going
to scrap it because they've been quite vocal in saying
that we don't think this is fair, particularly taxing people
on unrealized gains in their super account.
Speaker 1 (09:15):
Yeah, I need the ALP win. They'll do some sort
of deal with they'll hand pick a couple of senators
and they'll just make an offer the account refuse. They'll
strap it onto something else six basketball courts in your
constituency or something like that and make it very attractive.
So that's one that there's three million super tax, or
to put it more generally, folks, you know our wealth
(09:35):
on super is obviously on the agenda. If aop returns
and not on the agenda. Certainly not any shape or
form like the one that's proposed with the taxing unrealized
gains if the Coalition get back. I saw some other
issues around tax relief. It's funny, you know, normally, James,
when you have a budget, you've got people putting out
(09:58):
pre budget submissions and weeks. But because the government didn't
make it clear whether they were or they weren't going
to have a budget, I was looking, there's only a
handful of submissions around and you know they're pretty marginal. Really,
there isn't this sort of flood of pre budget submissions
because people didn't do the work understandably because they didn't
know there was going to be a budget. So why
would you put a policy team working on a budget
(10:19):
if you didn't know what was going to happen. And
when they finally announced it, which was this week, the
week of Monday, the tenth of March, only eleven days
out from the budget, which is unfair I think in
many ways. But there you go. Tax really financial advice
put simply, when you go into a financial advisor for
the first time, you can't deduct that bill. But if
you go in for the tenth time in a row,
you can could you explain to people how it works
(10:40):
on what could change?
Speaker 2 (10:42):
Yes, it's similar to earning an investment property. When you
buy an investment property, you cannot deduct the cost of
the conveyan to for example. That forms part of what
we call the capital base. So when you sell the property,
you get to add that back and reduce capital gains tax.
With financial planning in the financial advisory fhees pay up
front are largely similar to that where we give you
(11:03):
advice to invest into something using a certain structure that
generally has not been tax deductible in your and your
tax return. But if you invest and then you make
capital gains you can then claim the cost of that
advice down the track. Well, the changes are that this
happened from an ATO tax ruling in around October last
year from memory, where the tax officers clarified things and
(11:25):
said that, well, we nowadays recognize financial advisors as a
creditor to give some tax advice. So if the financial
plans cover tax advice, this could be something like salary
sacrificing in debt recycling these type of strategies, that portion
of the financial plan is tax deductible.
Speaker 1 (11:43):
Oh that's just so ridiculous. That is just daft. How
on earth are you going to apply that, James? What
are you going to do? Take yourself for something and
send it into the ETO, and says, for six minutes
we talked about tax, and for eight minutes we talked
about didn't talk about tax.
Speaker 2 (11:57):
Oh yeah, well get this. If I recommend income protection insurance,
the part of that plan is tax deductible. But where
I talk about life insurance and critical illness insurance, that
part is not tax deductible in the tax return.
Speaker 1 (12:13):
Oh, this is so stupid. It's so stupid. I don't
want to talk about it anymore. Okay, folks, Just so
you know, right in principle, first of all, when you
go into the initial financial advisor, which is when it
costs you the most, and which is where most people
have their hurdle of going in for the first time
because it's going to cost a lot the first time,
that's not tax deductible. On an ongoing basis, what shall
(12:33):
we say? Bits of it are more bits are than
there used to be, but still not all. Is that broadly? O?
Speaker 2 (12:40):
God, that's fair to say? Yeah? Rule of thumb, you'd
be able to claim the vast majority of ongoing financial
advice fees. So that's not so much of a concern.
It's more the upfront. There's this big calculation that needs
to be done around what minutes, what paragraphs deductible not deductible.
Speaker 1 (12:57):
What if I walk into you and say, hey, I
don't want to talk about anything except tax, and you say, okay,
is that one hundred percent tax deductible?
Speaker 2 (13:05):
Then it is. Yeah, it is. As long as you
go to a financial advisor who's a credited to give
you tax advice, which most of them are these days,
well then yeah, your whole upfront bill can be tax deductible.
Speaker 1 (13:16):
That would seem to be useful piece of information. We
don't give advice, but that would seem to be useful information, folks. Okay,
in terms of what I've seen around that, we will
know a lot more very soon, folks. But because the
budget has just been called, because this is only an
eleven day run up to it, that's all we can
tell you seriously just now. And we have such good
(13:37):
questions I want to jump straight chew them from Phil
and Evelyn and Lucas and Andrew back in a moment. Hello,
Welcome back to the Australians Money Puzzle podcast. James Kirby
here with James Gerard. For the first question. We'll do
(13:59):
with promptly because it's from Phil and he says, is
the twenty percent reduction on student loans and other empty promise.
I have not heard any update on this promise. No, Phil,
no update, but doesn't need to be. They said, basically,
in very broad terms, if they're re elected, because it
doesn't kick into the next June, they'll take twenty percent
off your HEX and they'll also push the threshold at
(14:21):
which you must pay hex of what was it, James,
From low fifties to high sixties something like that.
Speaker 2 (14:27):
Yeah, that's right. From fifty four to sixty seven thousand
is the proposed threshold.
Speaker 1 (14:32):
Yeah, so Phil, it stands, but it hinges on the
government being re elected. Okay. Evelyn says, my husband and
I are in our forties and we finally in a
financial position to buy our dream home. We would like
to pay this home completely in fifteen years. However, in
the event we can't do that, can we apply a
(14:54):
reverse mortgage on the home after retirement? Okay? Reverse mortgages
always an interesting area. This is not advice evivent, but
information only suddenly really starting to steam. I think reverse mortgages.
I haven't seen the new numbers, but I've seen the
action on the corporate side of the reverse mortgage providers
(15:15):
if you like, really starting expand and raise capital and
as takeovers going on. There lots happening. But on the
simple question about applying a reverse mortgage on your home
after you retire, first of all, I'm sure there's nothing
blocking you, is there? Legally?
Speaker 2 (15:33):
No, there isn't.
Speaker 1 (15:34):
Is it a useful strategy for some people?
Speaker 2 (15:38):
Some people it has its place, But of course there's
a cost, and a very large cost. When it comes
to reverse mortgages for starters. The interest rate is higher
than what a normal home loan would be. So where
a normal home loan is say six six and a
half percent, today, reverse mortgages add two percent or more
on top of that. And the other thing is that
the interests capitalized. So although you're not making a repayment
(16:02):
on that reverse mortgage, which may seem great down the track,
if you ever need to sell the house to go
into an age care facility and pay a bond, or
you want to leave something to your family. There may
be a rude shock there because there's a very large
bill that will need to be settled if you sell
your house down the track. If you have a reverse.
Speaker 1 (16:18):
Mortgage, and you by definition, we'll be selling your house
down the track. If you have a reverse mortgage.
Speaker 2 (16:25):
That's right. Well, some of the providers say that we're
not going to force you to sell this in your lifetime,
and that's probably why there's only a limited number of
reverse mortgages providers because they need to wait a long
time before they get their money back on paper. They're
accumulating all this interest against you or your house. But
they say, we're not going to force you to sell.
We can wait for you to move to an age
care facility or pass away and then we'll settle out
(16:47):
our debt. Then when we force you to sell the property.
Speaker 1 (16:51):
Or alternatively, it's either as you say, in effect, and
this is really pragmatic, folks. If not a touch prosaic
means the amount you have in retirement for edge care shrinks,
or should you be so lucky as to never go
through that particular phase, the amount you're going to give
as an inheritance, it's going to shrink because the reverse
(17:13):
mortgage provider has to get their money back. And as
you say, James, the really crucial thing, isn't it in
reverse mortgage is exact. The interest is being capitalized all
the time, and that can really rack up as years
go by. So someone said, oh, you know the house
is worth whatever. The house is worth half a million,
the house is worth a million, and you know the
loan is only X. But that loan is building all
(17:36):
the time as they capitalize the interest. And that's what
you're saying. Shocks people when they find out after ten
years that what the percentage of the home proceeds that
they won't get gets bigger and bigger.
Speaker 2 (17:48):
Touching on another part of Evelyn's question with regards to
is it better to pay off the mortgage completely when
they retire. Over the years, I've advised a few people
where they've maintained their home loan into retirement, so to
be clear that they've stopped working, but they still have
a residual mortgage, you know, say two hundred three hundred
thousand dollars. They do have sufficient funds, usually in superinuation,
(18:11):
to pull that out and pay down the mortgage. But
then it's an ongoing question to say, well, what's the
interest rate on my home loan versus what's the tax
free return that I'm getting inside of my superfund? And
is it better for me to keep more capital in
my superfund which might be generating seven or eight percent return,
and use some of that interest to pay down my mortgage,
(18:34):
which depending on the time, at the moment, it's more
beneficial to take money out of super to pay down
the mortgage because interest rates are so high. But cast
your mind back three or four years ago when Homeland
interest rates were two percent.
Speaker 1 (18:45):
I remember people on the show seeing the complete opposite, James.
So there are periods where it makes sense and those
periods for it doesn't make sense.
Speaker 2 (18:53):
Correct.
Speaker 1 (18:54):
Yeah, And at the moment, rits are so relatively high.
Keep that in mind. Thank you very much for that.
Even I hoped that was useful to you. But for
simple answer, yes, you can apply a reverse mortgage on
the whole after retirement. And is it better to pay
off the mortgage completely. It depends on your particular case
and stage. We're with rates, and at the moment we've
(19:14):
got pretty high rates. Okay, Lucas.
Speaker 2 (19:17):
Lucas says my wife started a sole trader speech pathology
business eight months ago and we're now looking to transition
to a proprietary limited company. What should we consider when
deciding if we should be both directors or beneficial owners?
Are their tax advantages to having it solely in her
name versus both of us?
Speaker 1 (19:36):
Very particular question, more of business tax question. But if
you could, perhaps to all the Lucases in the world
give abroad commentary on that.
Speaker 2 (19:46):
I can, so the general comments I would make there
is that if you're in a relationship to partners who
are married, consider one person being the quote unquote risky person.
That person should be the one that if the worst
case happens and bankruptcy was to occur, that's limited to
(20:07):
one spouse. So obviously that spouse you don't want it
to have all the assets. So then you have the
other spouse, who we call the assets spouse. So you
have one that wears the hat of being the director
of the business or the businesses. And then you have
the other spouse who sits as the trustee of the
family trust, who owns the family home in their name.
And this isn't rocket science. This is what builders have
(20:29):
done for the past fifu and.
Speaker 1 (20:32):
The one who's allowed go bankropt is obviously not the
one that is the trustee of the superint blah blah blah.
I mean, yeah, very obvious stuff there, but hey, not
everyone knows it, not everyone is familiar with it. But
there is always that guiding principle. Obviously. That's because there
is usefulness in a duel, and you can stack certain
things towards one side of the jewel when you need to,
(20:54):
so you get the broad drift there, Lucas, I'm sure, okay.
Question from Sandy, could you deal with annuities on the show?
On the face of it, they appear to just give
your money back to you. Well, not quite unless you
can access more old age pension. They are worthless, Sandy. Oh,
let's rewind the tape there. Annuities not very common, however,
(21:17):
in principle terribly attractive. Who would not like to be
able to buy a product which would give you a
guaranteed return for the rest of your life if that
product was really good? In principle, who wouldn't In practice,
All sorts of issues around annuities traditionally but continually revisited
by the market because people want them to work, and
(21:39):
there's also some specific advantages of having annuities in the
age pension system Centralink. Could you talk to Sandy a
little about that one, James.
Speaker 2 (21:50):
Yeah, I've advised someone in the past twelve months with
regards to taking Now it's an annuity and it's not
something which I would go to as my first preference.
I'd rather people put into a high interest.
Speaker 1 (22:01):
Why is it your default position not to go to them?
Speaker 2 (22:05):
Because you're involving a company that you're giving your money
to on the hope that they're going to keep paying
you a monthly return on that.
Speaker 1 (22:12):
But it's a promise, isn't it. It's a problem hop.
Speaker 2 (22:15):
Yeah, it's a promise, but if that company faces financial
difficulties and ensure We're in a highly regulated society in
Australia with the financial services system, but there is a
very small chance that annuity provider evaporates and so does
your your capital if that's the case. And the other
reason is that when I break down annuities and look
at the underlying rates of return, so how can they
pay you this monthly benefit? What interest are they effectively
(22:37):
paying you on the capital that you give them? It's
always and I say always less than term deposit rates
because there's a company involved. They're there to make a profit,
they have overheads, So you're complicating the way that you're
managing you're your money when you use an annuity. So
that's why my default position is just keep it simple,
keep it in a high interest bank account, keep it
in a term deposit. You'll end up with more interest
(22:59):
with less risk. However, they do have their place, and
that's usually where you're on the fringe of eligibility for
the age pension, where you have little level of assets
that means that you're not going to get a pension,
or you want to increase your part pension and you
hit it on the head. There's an asset test benefit
there where not the whole value of the annuity, only
part of it gets counted towards the asset test. So
(23:21):
it can be better in those situations if center link
is important to you to on one hand take a
lower return from the anuities, but then on the other hand,
get a higher age pension benefit.
Speaker 1 (23:32):
So the annuities have some place in terms of pension access,
don't they they're exempted, are they to some degree?
Speaker 2 (23:38):
Is that they used to be exempted, but then it's changed,
so depending on age and circumstances, it's roughly fifty to
three quarters of it can be exempt from the age
pension there, so yeah, it can help those people who
are just outside of the eligibility threshold for the age
pension due to their level of assets.
Speaker 1 (23:58):
Due to their high level of assets.
Speaker 2 (24:00):
High level of assets.
Speaker 1 (24:01):
Yeah, okay, we won't try and put a number on that,
but very broadly it would be something what four hundred thousand,
six hundred thousand that range.
Speaker 2 (24:09):
Yeah, it's a bit of a four hundred thousand for
there's all these different situations. If you're a couple, a homeowner,
if you want the full pension, it was a circle
for I think it's actually a bit high now for
the indexation, maybe four hundred and eighty thousand from memory.
So if you have more than that and you want
to get the full pension, you don't want to keep
the part pension, well then have it a look at
an annuity. But you just need to break it down
(24:31):
and understand what you're getting when you put your money
into an annuity.
Speaker 1 (24:35):
Because the pension is so valuable. It's just so valuable
if you think about it, Let's say there was no pensions,
but you wanted to get twenty nine thousand a year
as a single individual, Then how much would you have
to have in savings or investments to get that. That's
the way to look at it. You know, it's at
least half a million. That is fine. Pension or access
to it is so precious and it's such a serious
(24:58):
part of your design of your own retirement plans, folks,
it really is. And if you're lucky enough that it
doesn't matter to you, that's all fine, and we might
have all aspire to that, But many people, the majority
of people, actually will have access to some level of pension,
and you can manage that opera down depending on how
cleverly and astrutely you manage your own affairs and annuities
(25:22):
could be part of that. Now, final question from Andrew.
Perhaps it was you that was talking about in species transfers.
I can't remember.
Speaker 2 (25:30):
Potentially I can't recall either, but Andrew asked the idea
of in specie transfers was briefly mentioned on The Money
Puzzle a few times over the past few years. It'd
be good to know more about it on the show
with the right guests. You're the right guest, Jen, I'm
the right guest. Here we go. In particular, I'm curious
if there's any age restrictions around it. Could someone in
their forties transfer of basket of CBA shares into Super
(25:51):
slash self managed Super or are their trigger points at
sixty sixty five or sixty seven years of age?
Speaker 1 (25:58):
This a great question, you know, it's a really good question, Andrew,
thank you very much for that. So in special transfer,
as folks, just to remember you have something outside Super. Right,
you've got one hundred grands worth of come Work Bank
shares because you were really lucky because you've bought them
for very little many years ago, but you didn't have
them in Super. You want to put them in Super.
You can move them in, but you have to do
it at the market rate. And when you do it
(26:19):
at the market rate across, then that's coded in specie transfer.
Is that broadly correct? Is there anything? Is your age
in any way relevant to this exercise? Ever?
Speaker 2 (26:29):
It is the reason is that when you do in
specie transfers, they are a relatively simple exercise. You just
pick up the ownership of your shares, your CBA shares
and your personal name and then you drop them into
your super fund. And the way that you do that
is an off market transfer form and it takes a
couple of weeks to process it. There's minimal fees involved
(26:50):
with that. It's really just dealing with the share registry
to process that change.
Speaker 1 (26:55):
And the inspecie part is that you transfer at the
price on the day or at the market price.
Speaker 2 (27:00):
Correct. Yeah, yeah, from memory there might be a little
bit of flexibility, so I feel like there's a window there.
So from memory it is maybe like twenty or twenty
eight days where you could choose the price that you
pick it up, but somewhere between on the day or
days around it that you get to pick the price,
but you basically pick it up, you move it into
the super fund. Now age comes into it because when
(27:21):
you move that investment from your personal name into the superfund,
that's a contribution to your superfund. And so we need
to take into account the concessional contribution cap, the non
concessional contribution cap, and of course these things are dictated
by age. But in short, as long as you're under
age seventy five, it's relatively straightforward to be able to
(27:41):
pick up assets and put that into SUPER if that
amount is less than three hundred and sixty thousand, because
the annual cap that you can put into SUPER with
your after tax money which includes these in specie transfers,
is one hundred and twenty thousand. And you can use
these things called the bring forward provision while you're under
the age of seventy five to then two future years
in which is three hundred and sixty thousand.
Speaker 1 (28:04):
Just to make it really complicated, are the concessional rules
irrelevant here?
Speaker 2 (28:08):
They're not irrelevant. If you wanted to put in a
bit more than three hundred and sixty thousand, well, then
you could also put part of or you could classify
part of that in specie transfer as a concessional.
Speaker 1 (28:20):
Could you classify a certain section of it as concessional
and the next section is non concessional?
Speaker 2 (28:26):
Absolutely? Yeah, So if you wanted to maximize your thirty
thousand concessional contribution cap, you could definitely do that, and
then the rest you could do as non concessional. So
usually people be working with their tax accountant or their
financial advisor to firstly identify what assets to transfer, why
is that a good idea? And then the next part
(28:46):
is how do we account for that with regards to
the contribution into the superfund with that in specie transfer,
will it be concessional or non concessional or mix of both.
Speaker 1 (28:56):
Okay, so there you are. I think Andrew that would
answer it for you. And the course then eventually with
James's alluding to, is that there's a point which you're
limited in what you can contribute because you might be retired.
But it was seemed to me that it wasn't an
issue for you. The main age restriction is to make
sure you have the time to get their money in.
And if the amount you want to put in is
(29:16):
more than you're allowed in a single year, then what
you would do is you would start to string them together,
and you're allowed to put three years worth together. That's
called the carry forward provisions. Thank you my pleasure, James.
And look, one thing when you're speaking about the budget
earlier I forgot to raise was you told me a
little while ago. Remember you used to go every single
year to Canberra and there used to be like lockdown facility, lockdown,
(29:39):
lock up, lock up facility.
Speaker 2 (29:42):
I think the listen will be interested to hear that
that process and whether that still happens now unfortunately.
Speaker 1 (29:47):
I mean, some people think it's great that it doesn't happen,
but after COVID. In COVID, of course, sadly they realize
you don't have to fly everybody up to Canberra, and
you don't have to put them all up in hotels,
and you don't have to allow them all to meet
after the budget and have a big night out in
Canberra where you have the busiest Tuesday night in Canberra
of the year. And consequently, what happened in COVID was
(30:10):
they started to do lock ups in the cities. You
could do it in Melbourne, you could do it in Canberra, Brisbane,
wherever you want. But more recently than really only the
mostly just the Canberra bureaus and maybe TV or whatever
go to Canberra. But it's no longer necessary for everyone
to go to Canberra, and unfortunately we all have our
own individual lockups now, which are interesting, but not quite
(30:33):
as interesting as it used to be when you had
hundredths of financial journalists all in Canberra who rarely met
each other. So it was a great, great social occasion
in its day, not quite as social now as it
used to be. So there you are Okay, hey, thanks
for all your questions and thanks for getting James to
bring me up to speed on all that. With the
lock up. Our guys in it, I imagine Will be
(30:55):
told probably told you yesterday hey, by the way, there's
a lockup in in eleven days and probably gulped because
they've got to get a huge facility ready and it
has to be you know, closed off, you can't call
a friend, etc. Has to be secure. Treasury officials have
to come in and they pace up and down just
like your examiner. Have you ever had an old fashioned
(31:17):
exam where the examiner walked up and down. The treasure
officials walk up and down. Just in case you're up
to anything that's most unusual set up in the budget,
but there you are. It is what it is, and
they were happy to report it to you. And we'll
have a budget special also. Of course I do the
budget every year with Will Hamilton and I will do
with this year with him too. That's coming up. Okay.
(31:39):
Thank you for your emails, Keep them rolling the Money
Puzzle at the Australian dot com dot au. Thanks to
Leah Sam mcglue for producing the show, and thanks most
of all to James Gerard Financial advisor dot com dot au.
Talk to you again, James.
Speaker 2 (31:51):
Thank you, see you next time. The Charter of FOM
Hello, and welcome to The Australian's Money Puzzled podcast. I'm
James Kirby. Welcome aboard everybody. We have a lot going
on all of a sudden. First of all, we have
a budget now you might say unexpectedly, that is, the
government flip flopped on this, but has finally settled on
a date which is March twenty five, not far away.
Keep that in mind, folks. And we have an election,
(00:30):
of course, which will come up soon after that in May,
and they have already, of course, both sides of Parliament
have started handing out the goodies here in terms of election,
and there are some really important distinguishing features between the
two parties here. In fact, it's in this area of
investment and housing, student loans etc. That some of the
(00:52):
real distinction in party policy is emerging. So I think
it's going to be very important in the weeks ahead,
as in we need to always pay attention to budgets
because we can get things, we can get things taken away. Similarly,
the same goes for elections, and any investor should be
(01:12):
across what's going on to get across what's going on.
My guest today is James Gerard from Financial Advisor dot
com dot you awai, James.
Speaker 2 (01:22):
I'm doing great. Thanks for having me on today, James.
Speaker 1 (01:24):
I'm delighted to hear this is a budget. But then
I'm one of those sort of strange people who enjoys budgets.
I really do. It's a bit like going for a
long run. Don't necessarily enjoy it while you're doing it,
but afterwards you say that was good. Now I'm really
across everything, and for me at least, it's like a
reset for the year. I'm just looking at. First of all,
(01:45):
the twenty fifth is the date, and that, of course,
by nature will be a pre election budget. It gives
the incumbents the ALP chance to show the wide republic
where public finances are at and I mean there's raw
record of that all the time, but it gives them
a chance to actually a moment, if you like, in
front of the spotlight, to put their case as to
(02:08):
the standings of the broader big picture. But then there's
also measures, which is what we are always interested in.
What might they do, what might they aspart to do,
what might they promise going into the future. And there's
a lot going on. One of the things I want
to talk to you. First of all, was about that
distinction on terms of what parties are offering. One big
(02:28):
distinction is about super, really simple. The Coalition will let
you use your SUPER to buy a home. The ALP
will not let you do so that's a major distinction
between the two parties. I don't want to get too
political in this. It's hard to cover an election without
being political, but I don't want to get party political
on this. I want to look at it from an
investor's point of view. How powerful do you think that
(02:50):
tapping super, allowing people to tap super might be, James.
Speaker 2 (02:54):
It's really powerful, particularly for people in Sydney, Melbourne, Brisbane
where property prices have gone up substantially over the past
five years or ten year period, and it's really tough
for these younger people in their twenties, thirties, even forties
to get into the property market where it's over ten
years of the average income to buy the average property,
(03:15):
and statistics show that you need to save at least
ten years work for savings to be able to get
that first property. So being able to fast track that
by fifty thousand dollars per person, So if you're a
couple that's one hundred thousand dollars that you can grab
from your super account towards a deposit. It'll go a
long way. But then there's the well, what does that
mean on the other end, where we're missing out on
(03:36):
between fifty to one hundred thousand dollars of capital there
that could have been compound in a way earning eight
percent nine percent return over thirty forty years until retirement.
That means that there'll be less money there for retirement.
But then I guess the argument that the way that
I would think about it is that it helps you
achieve this goal to get into the property market sooner.
You pay down your mortgage sooner because you're off the
(03:56):
rental ladder sooner, and then when you're in that sort
of five to ten year period before retirement, that's when
you can put back extra money because you don't have
the mortgage anymore, and that's where you can replenish the
fifty thousand plus the returns that you would have had
along the way.
Speaker 1 (04:12):
I mean, I have to say I'm a reluctant supporter
of it for the simple reason that I know a
policy wise, it's not a great idea housing should fix
housing super should fix SUPER. However, I'm pragmatic. Here's the thing.
All the tax breaks in the system for the individual
hinge on owing your own home capital gains tax exemption,
(04:33):
which is a big CGT exemption for homeowners. You don't
get to benefit from that if you don't buy your house.
It goes through all your life right through too. When
you retire, you can get the family home is effectively
excluded from assessment of access to the pension. So the
point I make is that it's not just about buying
a house. It's about including yourself and the benefits of
(04:54):
the tax system. And I don't think the tax system
is going to change, So yes, I think there will
be more support than people realize. Important point which I
don't see very often covered. If you go in and
look at the actual policy. Yes, you can take fifty
thousand dollar of your SUPER towards the home, assuming you
have fifty thousand in there. The second thing is you've
got to put it back when you sell the house,
(05:17):
assuming you sell the house. But that's a proviso in
there which hasn't had a lot of attention. So from
a policy perspective, it's not quite open the doors and
let all the superflow out. It has to be the
amount taken out has to be returned in the fullness
of time when you sell the home. We might get
some more detail on that in the election. On the
other side, then, James, I think the outstanding budget election
(05:38):
carrot from the ALP, I think at least is the
HEX deal. It's so simple. You just say to someone,
if you vote a LP, if you return the government,
you get twenty percent off your HEX. I mean, it
is just so simple and so clearly a budget giveaway.
It's outrageous almost in its simplicity. But I think for
that portion of the population, which by the way is
(06:00):
the big portion, right, so the gen X and the
millenniums combined are now bigger than boomers for the first
time ever, So I think that one may really work
as well. Do you think the HEX one will cut through?
Speaker 2 (06:12):
I think it will. I'm making an assumption here. I
feel that the younger generation will swing political parties. They're
less set in their ways election to election, so something
like this, which on average will save them about five
thousand dollars with that twenty percent of their HEX debt
wiped away, is really appealing and Also, the Labor Party
have another proposal around that, and that's where they're increased
(06:34):
or they're proposing to increase the threshold of mandatory hex repayment.
So currently, if you earn less than fifty four thousand
dollars per year, you don't have to pay anything back
of your HEX debt. But the Labor Party are proposing
to increase that to sixty seven thousand dollars per year.
So that means that someone on seventy thousand dollars per
year will will save about thirteen hundred per year in
(06:55):
mandatory hex repayment. So that also helps I guess from
the cost of living side of things, where people won't
be compelled to have to pay this hex stet, that
they can earn more money and still have that hexit
there accumulate at a low indexation rate every year.
Speaker 1 (07:10):
This is one of the things that might happen is
that they'll copy each other. I mean there's a lot
of that going on. One party announces something and the
other party says, yes, we'll do that too, which is
a strange sort of mechanism which pushes the parties into
the center. But there are some things they can't copy,
so in theory, at least with the HEX at least
the Coalition might be able to respond on that, but
(07:31):
the ALP is probably never going to be able to
respond on allowing you to tap your super for a
home deposit because of the importance of the entire supersystem
to them, the SGC to them, the industry funds to
them as well, and that is a political point. But folks,
I thought it was really important to get up to
speed on what was going on around budget and election
(07:52):
that we know so far, and we'll take a break
and then we look at what also might happen back
in a moment. Hello, Welcome back to The Australian's Money
Puzzle podcast. I'm James Kirby talking to James Girard of
(08:15):
Financial Advisor dot com dot a regular guest on the show,
contributor of course to The Australian's Wealth Section. So what
else might we expect anything else going around in your
wonderful world of financial planning? Three million dollars tax for super.
If they get back in, they're going to bring that
back in again, aren't they. They're going to have a
(08:36):
second crack at that.
Speaker 2 (08:37):
Ye, that's right. That legislation the Division two ninety six
legislation has gone through the lower House successfully and it's
in the Senate at the moment, and there's a lot
of debate. So the Coalition don't really like it. The
crossbenches have questions about it, and it hasn't been scheduled
for a vote before the election, and it looks unlikely
that will go through to a vote before the election.
(08:58):
With the AOP win, that push it to have that
go through, which is that extra tax above three million dollars.
But if the Coalition win, I'm pretty sure they're going
to scrap it because they've been quite vocal in saying
that we don't think this is fair, particularly taxing people
on unrealized gains in their super account.
Speaker 1 (09:15):
Yeah, I need the ALP win. They'll do some sort
of deal with they'll hand pick a couple of senators
and they'll just make an offer the account refuse. They'll
strap it onto something else six basketball courts in your
constituency or something like that and make it very attractive.
So that's one that there's three million super tax, or
to put it more generally, folks, you know our wealth
(09:35):
on super is obviously on the agenda. If aop returns
and not on the agenda. Certainly not any shape or
form like the one that's proposed with the taxing unrealized
gains if the Coalition get back. I saw some other
issues around tax relief. It's funny, you know, normally, James,
when you have a budget, you've got people putting out
(09:58):
pre budget submissions and weeks. But because the government didn't
make it clear whether they were or they weren't going
to have a budget, I was looking, there's only a
handful of submissions around and you know they're pretty marginal. Really,
there isn't this sort of flood of pre budget submissions
because people didn't do the work understandably because they didn't
know there was going to be a budget. So why
would you put a policy team working on a budget
(10:19):
if you didn't know what was going to happen. And
when they finally announced it, which was this week, the
week of Monday, the tenth of March, only eleven days
out from the budget, which is unfair I think in
many ways. But there you go. Tax really financial advice
put simply, when you go into a financial advisor for
the first time, you can't deduct that bill. But if
you go in for the tenth time in a row,
you can could you explain to people how it works
(10:40):
on what could change?
Speaker 2 (10:42):
Yes, it's similar to earning an investment property. When you
buy an investment property, you cannot deduct the cost of
the conveyan to for example. That forms part of what
we call the capital base. So when you sell the property,
you get to add that back and reduce capital gains tax.
With financial planning in the financial advisory fhees pay up
front are largely similar to that where we give you
(11:03):
advice to invest into something using a certain structure that
generally has not been tax deductible in your and your
tax return. But if you invest and then you make
capital gains you can then claim the cost of that
advice down the track. Well, the changes are that this
happened from an ATO tax ruling in around October last
year from memory, where the tax officers clarified things and
(11:25):
said that, well, we nowadays recognize financial advisors as a
creditor to give some tax advice. So if the financial
plans cover tax advice, this could be something like salary
sacrificing in debt recycling these type of strategies, that portion
of the financial plan is tax deductible.
Speaker 1 (11:43):
Oh that's just so ridiculous. That is just daft. How
on earth are you going to apply that, James? What
are you going to do? Take yourself for something and
send it into the ETO, and says, for six minutes
we talked about tax, and for eight minutes we talked
about didn't talk about tax.
Speaker 2 (11:57):
Oh yeah, well get this. If I recommend income protection insurance,
the part of that plan is tax deductible. But where
I talk about life insurance and critical illness insurance, that
part is not tax deductible in the tax return.
Speaker 1 (12:13):
Oh, this is so stupid. It's so stupid. I don't
want to talk about it anymore. Okay, folks, Just so
you know, right in principle, first of all, when you
go into the initial financial advisor, which is when it
costs you the most, and which is where most people
have their hurdle of going in for the first time
because it's going to cost a lot the first time,
that's not tax deductible. On an ongoing basis, what shall
(12:33):
we say? Bits of it are more bits are than
there used to be, but still not all. Is that broadly? O?
Speaker 2 (12:40):
God, that's fair to say? Yeah? Rule of thumb, you'd
be able to claim the vast majority of ongoing financial
advice fees. So that's not so much of a concern.
It's more the upfront. There's this big calculation that needs
to be done around what minutes, what paragraphs deductible not deductible.
Speaker 1 (12:57):
What if I walk into you and say, hey, I
don't want to talk about anything except tax, and you say, okay,
is that one hundred percent tax deductible?
Speaker 2 (13:05):
Then it is. Yeah, it is. As long as you
go to a financial advisor who's a credited to give
you tax advice, which most of them are these days,
well then yeah, your whole upfront bill can be tax deductible.
Speaker 1 (13:16):
That would seem to be useful piece of information. We
don't give advice, but that would seem to be useful information, folks. Okay,
in terms of what I've seen around that, we will
know a lot more very soon, folks. But because the
budget has just been called, because this is only an
eleven day run up to it, that's all we can
tell you seriously just now. And we have such good
(13:37):
questions I want to jump straight chew them from Phil
and Evelyn and Lucas and Andrew back in a moment. Hello,
Welcome back to the Australians Money Puzzle podcast. James Kirby
here with James Gerard. For the first question. We'll do
(13:59):
with promptly because it's from Phil and he says, is
the twenty percent reduction on student loans and other empty promise.
I have not heard any update on this promise. No, Phil,
no update, but doesn't need to be. They said, basically,
in very broad terms, if they're re elected, because it
doesn't kick into the next June, they'll take twenty percent
off your HEX and they'll also push the threshold at
(14:21):
which you must pay hex of what was it, James,
From low fifties to high sixties something like that.
Speaker 2 (14:27):
Yeah, that's right. From fifty four to sixty seven thousand
is the proposed threshold.
Speaker 1 (14:32):
Yeah, so Phil, it stands, but it hinges on the
government being re elected. Okay. Evelyn says, my husband and
I are in our forties and we finally in a
financial position to buy our dream home. We would like
to pay this home completely in fifteen years. However, in
the event we can't do that, can we apply a
(14:54):
reverse mortgage on the home after retirement? Okay? Reverse mortgages
always an interesting area. This is not advice evivent, but
information only suddenly really starting to steam. I think reverse mortgages.
I haven't seen the new numbers, but I've seen the
action on the corporate side of the reverse mortgage providers
(15:15):
if you like, really starting expand and raise capital and
as takeovers going on. There lots happening. But on the
simple question about applying a reverse mortgage on your home
after you retire, first of all, I'm sure there's nothing
blocking you, is there? Legally?
Speaker 2 (15:33):
No, there isn't.
Speaker 1 (15:34):
Is it a useful strategy for some people?
Speaker 2 (15:38):
Some people it has its place, But of course there's
a cost, and a very large cost. When it comes
to reverse mortgages for starters. The interest rate is higher
than what a normal home loan would be. So where
a normal home loan is say six six and a
half percent, today, reverse mortgages add two percent or more
on top of that. And the other thing is that
the interests capitalized. So although you're not making a repayment
(16:02):
on that reverse mortgage, which may seem great down the track,
if you ever need to sell the house to go
into an age care facility and pay a bond, or
you want to leave something to your family. There may
be a rude shock there because there's a very large
bill that will need to be settled if you sell
your house down the track. If you have a reverse.
Speaker 1 (16:18):
Mortgage, and you by definition, we'll be selling your house
down the track. If you have a reverse mortgage.
Speaker 2 (16:25):
That's right. Well, some of the providers say that we're
not going to force you to sell this in your lifetime,
and that's probably why there's only a limited number of
reverse mortgages providers because they need to wait a long
time before they get their money back on paper. They're
accumulating all this interest against you or your house. But
they say, we're not going to force you to sell.
We can wait for you to move to an age
care facility or pass away and then we'll settle out
(16:47):
our debt. Then when we force you to sell the property.
Speaker 1 (16:51):
Or alternatively, it's either as you say, in effect, and
this is really pragmatic, folks. If not a touch prosaic
means the amount you have in retirement for edge care shrinks,
or should you be so lucky as to never go
through that particular phase, the amount you're going to give
as an inheritance, it's going to shrink because the reverse
(17:13):
mortgage provider has to get their money back. And as
you say, James, the really crucial thing, isn't it in
reverse mortgage is exact. The interest is being capitalized all
the time, and that can really rack up as years
go by. So someone said, oh, you know the house
is worth whatever. The house is worth half a million,
the house is worth a million, and you know the
loan is only X. But that loan is building all
(17:36):
the time as they capitalize the interest. And that's what
you're saying. Shocks people when they find out after ten
years that what the percentage of the home proceeds that
they won't get gets bigger and bigger.
Speaker 2 (17:48):
Touching on another part of Evelyn's question with regards to
is it better to pay off the mortgage completely when
they retire. Over the years, I've advised a few people
where they've maintained their home loan into retirement, so to
be clear that they've stopped working, but they still have
a residual mortgage, you know, say two hundred three hundred
thousand dollars. They do have sufficient funds, usually in superinuation,
(18:11):
to pull that out and pay down the mortgage. But
then it's an ongoing question to say, well, what's the
interest rate on my home loan versus what's the tax
free return that I'm getting inside of my superfund? And
is it better for me to keep more capital in
my superfund which might be generating seven or eight percent return,
and use some of that interest to pay down my mortgage,
(18:34):
which depending on the time, at the moment, it's more
beneficial to take money out of super to pay down
the mortgage because interest rates are so high. But cast
your mind back three or four years ago when Homeland
interest rates were two percent.
Speaker 1 (18:45):
I remember people on the show seeing the complete opposite, James.
So there are periods where it makes sense and those
periods for it doesn't make sense.
Speaker 2 (18:53):
Correct.
Speaker 1 (18:54):
Yeah, And at the moment, rits are so relatively high.
Keep that in mind. Thank you very much for that.
Even I hoped that was useful to you. But for
simple answer, yes, you can apply a reverse mortgage on
the whole after retirement. And is it better to pay
off the mortgage completely. It depends on your particular case
and stage. We're with rates, and at the moment we've
(19:14):
got pretty high rates. Okay, Lucas.
Speaker 2 (19:17):
Lucas says my wife started a sole trader speech pathology
business eight months ago and we're now looking to transition
to a proprietary limited company. What should we consider when
deciding if we should be both directors or beneficial owners?
Are their tax advantages to having it solely in her
name versus both of us?
Speaker 1 (19:36):
Very particular question, more of business tax question. But if
you could, perhaps to all the Lucases in the world
give abroad commentary on that.
Speaker 2 (19:46):
I can, so the general comments I would make there
is that if you're in a relationship to partners who
are married, consider one person being the quote unquote risky person.
That person should be the one that if the worst
case happens and bankruptcy was to occur, that's limited to
(20:07):
one spouse. So obviously that spouse you don't want it
to have all the assets. So then you have the
other spouse, who we call the assets spouse. So you
have one that wears the hat of being the director
of the business or the businesses. And then you have
the other spouse who sits as the trustee of the
family trust, who owns the family home in their name.
And this isn't rocket science. This is what builders have
(20:29):
done for the past fifu and.
Speaker 1 (20:32):
The one who's allowed go bankropt is obviously not the
one that is the trustee of the superint blah blah blah.
I mean, yeah, very obvious stuff there, but hey, not
everyone knows it, not everyone is familiar with it. But
there is always that guiding principle. Obviously. That's because there
is usefulness in a duel, and you can stack certain
things towards one side of the jewel when you need to,
(20:54):
so you get the broad drift there, Lucas, I'm sure, okay.
Question from Sandy, could you deal with annuities on the show?
On the face of it, they appear to just give
your money back to you. Well, not quite unless you
can access more old age pension. They are worthless, Sandy. Oh,
let's rewind the tape there. Annuities not very common, however,
(21:17):
in principle terribly attractive. Who would not like to be
able to buy a product which would give you a
guaranteed return for the rest of your life if that
product was really good? In principle, who wouldn't In practice,
All sorts of issues around annuities traditionally but continually revisited
by the market because people want them to work, and
(21:39):
there's also some specific advantages of having annuities in the
age pension system Centralink. Could you talk to Sandy a
little about that one, James.
Speaker 2 (21:50):
Yeah, I've advised someone in the past twelve months with
regards to taking Now it's an annuity and it's not
something which I would go to as my first preference.
I'd rather people put into a high interest.
Speaker 1 (22:01):
Why is it your default position not to go to them?
Speaker 2 (22:05):
Because you're involving a company that you're giving your money
to on the hope that they're going to keep paying
you a monthly return on that.
Speaker 1 (22:12):
But it's a promise, isn't it. It's a problem hop.
Speaker 2 (22:15):
Yeah, it's a promise, but if that company faces financial
difficulties and ensure We're in a highly regulated society in
Australia with the financial services system, but there is a
very small chance that annuity provider evaporates and so does
your your capital if that's the case. And the other
reason is that when I break down annuities and look
at the underlying rates of return, so how can they
pay you this monthly benefit? What interest are they effectively
(22:37):
paying you on the capital that you give them? It's
always and I say always less than term deposit rates
because there's a company involved. They're there to make a profit,
they have overheads, So you're complicating the way that you're
managing you're your money when you use an annuity. So
that's why my default position is just keep it simple,
keep it in a high interest bank account, keep it
in a term deposit. You'll end up with more interest
(22:59):
with less risk. However, they do have their place, and
that's usually where you're on the fringe of eligibility for
the age pension, where you have little level of assets
that means that you're not going to get a pension,
or you want to increase your part pension and you
hit it on the head. There's an asset test benefit
there where not the whole value of the annuity, only
part of it gets counted towards the asset test. So
(23:21):
it can be better in those situations if center link
is important to you to on one hand take a
lower return from the anuities, but then on the other hand,
get a higher age pension benefit.
Speaker 1 (23:32):
So the annuities have some place in terms of pension access,
don't they they're exempted, are they to some degree?
Speaker 2 (23:38):
Is that they used to be exempted, but then it's changed,
so depending on age and circumstances, it's roughly fifty to
three quarters of it can be exempt from the age
pension there, so yeah, it can help those people who
are just outside of the eligibility threshold for the age
pension due to their level of assets.
Speaker 1 (23:58):
Due to their high level of assets.
Speaker 2 (24:00):
High level of assets.
Speaker 1 (24:01):
Yeah, okay, we won't try and put a number on that,
but very broadly it would be something what four hundred thousand,
six hundred thousand that range.
Speaker 2 (24:09):
Yeah, it's a bit of a four hundred thousand for
there's all these different situations. If you're a couple, a homeowner,
if you want the full pension, it was a circle
for I think it's actually a bit high now for
the indexation, maybe four hundred and eighty thousand from memory.
So if you have more than that and you want
to get the full pension, you don't want to keep
the part pension, well then have it a look at
an annuity. But you just need to break it down
(24:31):
and understand what you're getting when you put your money
into an annuity.
Speaker 1 (24:35):
Because the pension is so valuable. It's just so valuable
if you think about it, Let's say there was no pensions,
but you wanted to get twenty nine thousand a year
as a single individual, Then how much would you have
to have in savings or investments to get that. That's
the way to look at it. You know, it's at
least half a million. That is fine. Pension or access
to it is so precious and it's such a serious
(24:58):
part of your design of your own retirement plans, folks,
it really is. And if you're lucky enough that it
doesn't matter to you, that's all fine, and we might
have all aspire to that, But many people, the majority
of people, actually will have access to some level of pension,
and you can manage that opera down depending on how
cleverly and astrutely you manage your own affairs and annuities
(25:22):
could be part of that. Now, final question from Andrew.
Perhaps it was you that was talking about in species transfers.
I can't remember.
Speaker 2 (25:30):
Potentially I can't recall either, but Andrew asked the idea
of in specie transfers was briefly mentioned on The Money
Puzzle a few times over the past few years. It'd
be good to know more about it on the show
with the right guests. You're the right guest, Jen, I'm
the right guest. Here we go. In particular, I'm curious
if there's any age restrictions around it. Could someone in
their forties transfer of basket of CBA shares into Super
(25:51):
slash self managed Super or are their trigger points at
sixty sixty five or sixty seven years of age?
Speaker 1 (25:58):
This a great question, you know, it's a really good question, Andrew,
thank you very much for that. So in special transfer,
as folks, just to remember you have something outside Super. Right,
you've got one hundred grands worth of come Work Bank
shares because you were really lucky because you've bought them
for very little many years ago, but you didn't have
them in Super. You want to put them in Super.
You can move them in, but you have to do
it at the market rate. And when you do it
(26:19):
at the market rate across, then that's coded in specie transfer.
Is that broadly correct? Is there anything? Is your age
in any way relevant to this exercise? Ever?
Speaker 2 (26:29):
It is the reason is that when you do in
specie transfers, they are a relatively simple exercise. You just
pick up the ownership of your shares, your CBA shares
and your personal name and then you drop them into
your super fund. And the way that you do that
is an off market transfer form and it takes a
couple of weeks to process it. There's minimal fees involved
(26:50):
with that. It's really just dealing with the share registry
to process that change.
Speaker 1 (26:55):
And the inspecie part is that you transfer at the
price on the day or at the market price.
Speaker 2 (27:00):
Correct. Yeah, yeah, from memory there might be a little
bit of flexibility, so I feel like there's a window there.
So from memory it is maybe like twenty or twenty
eight days where you could choose the price that you
pick it up, but somewhere between on the day or
days around it that you get to pick the price,
but you basically pick it up, you move it into
the super fund. Now age comes into it because when
(27:21):
you move that investment from your personal name into the superfund,
that's a contribution to your superfund. And so we need
to take into account the concessional contribution cap, the non
concessional contribution cap, and of course these things are dictated
by age. But in short, as long as you're under
age seventy five, it's relatively straightforward to be able to
(27:41):
pick up assets and put that into SUPER if that
amount is less than three hundred and sixty thousand, because
the annual cap that you can put into SUPER with
your after tax money which includes these in specie transfers,
is one hundred and twenty thousand. And you can use
these things called the bring forward provision while you're under
the age of seventy five to then two future years
in which is three hundred and sixty thousand.
Speaker 1 (28:04):
Just to make it really complicated, are the concessional rules
irrelevant here?
Speaker 2 (28:08):
They're not irrelevant. If you wanted to put in a
bit more than three hundred and sixty thousand, well, then
you could also put part of or you could classify
part of that in specie transfer as a concessional.
Speaker 1 (28:20):
Could you classify a certain section of it as concessional
and the next section is non concessional?
Speaker 2 (28:26):
Absolutely? Yeah, So if you wanted to maximize your thirty
thousand concessional contribution cap, you could definitely do that, and
then the rest you could do as non concessional. So
usually people be working with their tax accountant or their
financial advisor to firstly identify what assets to transfer, why
is that a good idea? And then the next part
(28:46):
is how do we account for that with regards to
the contribution into the superfund with that in specie transfer,
will it be concessional or non concessional or mix of both.
Speaker 1 (28:56):
Okay, so there you are. I think Andrew that would
answer it for you. And the course then eventually with
James's alluding to, is that there's a point which you're
limited in what you can contribute because you might be retired.
But it was seemed to me that it wasn't an
issue for you. The main age restriction is to make
sure you have the time to get their money in.
And if the amount you want to put in is
(29:16):
more than you're allowed in a single year, then what
you would do is you would start to string them together,
and you're allowed to put three years worth together. That's
called the carry forward provisions. Thank you my pleasure, James.
And look, one thing when you're speaking about the budget
earlier I forgot to raise was you told me a
little while ago. Remember you used to go every single
year to Canberra and there used to be like lockdown facility, lockdown,
(29:39):
lock up, lock up facility.
Speaker 2 (29:42):
I think the listen will be interested to hear that
that process and whether that still happens now unfortunately.
Speaker 1 (29:47):
I mean, some people think it's great that it doesn't happen,
but after COVID. In COVID, of course, sadly they realize
you don't have to fly everybody up to Canberra, and
you don't have to put them all up in hotels,
and you don't have to allow them all to meet
after the budget and have a big night out in
Canberra where you have the busiest Tuesday night in Canberra
of the year. And consequently, what happened in COVID was
(30:10):
they started to do lock ups in the cities. You
could do it in Melbourne, you could do it in Canberra, Brisbane,
wherever you want. But more recently than really only the
mostly just the Canberra bureaus and maybe TV or whatever
go to Canberra. But it's no longer necessary for everyone
to go to Canberra, and unfortunately we all have our
own individual lockups now, which are interesting, but not quite
(30:33):
as interesting as it used to be when you had
hundredths of financial journalists all in Canberra who rarely met
each other. So it was a great, great social occasion
in its day, not quite as social now as it
used to be. So there you are Okay, hey, thanks
for all your questions and thanks for getting James to
bring me up to speed on all that. With the
lock up. Our guys in it, I imagine Will be
(30:55):
told probably told you yesterday hey, by the way, there's
a lockup in in eleven days and probably gulped because
they've got to get a huge facility ready and it
has to be you know, closed off, you can't call
a friend, etc. Has to be secure. Treasury officials have
to come in and they pace up and down just
like your examiner. Have you ever had an old fashioned
(31:17):
exam where the examiner walked up and down. The treasure
officials walk up and down. Just in case you're up
to anything that's most unusual set up in the budget,
but there you are. It is what it is, and
they were happy to report it to you. And we'll
have a budget special also. Of course I do the
budget every year with Will Hamilton and I will do
with this year with him too. That's coming up. Okay.
(31:39):
Thank you for your emails, Keep them rolling the Money
Puzzle at the Australian dot com dot au. Thanks to
Leah Sam mcglue for producing the show, and thanks most
of all to James Gerard Financial advisor dot com dot au.
Talk to you again, James.
Speaker 2 (31:51):
Thank you, see you next time. The Charter of FOM
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