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Super contributions – are they the best option to invest a lump sum?



Question 1. I have received an inheritance from my mother $112,000 (my share of a family property). I studied Moneysmart, called my accountant and the ATO etc., but I’m still unsure about how much tax, if any, I need to pay on that. I’ve put the max into super this year $110,000 and I’m sacrificing 10 per cent of wages, and some non-concessional after tax also, but I’m under the limit. I am currently 67 and eligible for a full pension, but I chose to work to build my super etc.

My marginal tax rate seems to hover around 11 per cent as I’m on a variable/casual income. Therefore, I was planning on not applying for the concessional rate in July. Will I be exposed to capital gains on the sale of the property, only, or some additional tax as well? Thanks

In relation to the family property, was that your mother’s principal place of residence? If yes, then no tax is payable. If no, and the property was sold prior to you receiving the funds, then any capital gains would be assessed in the deceased estate’s tax return.

So it sounds like you may not be personally liable for any CGT, unless the property was passed directly to you and you then sold the property.

A couple of other points worth noting:

You have stated that your marginal tax rate is around 11 per cent. However, this sounds like your average tax rate. The difference being your marginal rate, is the tax you pay on the highest part of your income only, see table below. The average tax rate is your total income earned divided by income tax paid.

As an example, if you earned $50,000 your marginal tax rate is 32.5 per cent as that is the highest rate paid on the amount earned over $45,000. But income tax paid on $50,000 is only $6717, giving an average tax rate of 13.43 per cent ($6717/$50,000).

Note the above example ignores Medicare levy and any tax offsets.

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In relation to turning age pension age, it would be worth applying even if you are still working.

Due to the income-free area and work bonus, a single person can earn over $60,000 from work and still receive a part age pension.

Question 2. I am 55 this year. I have approximately $80,000 sitting in a term deposit getting next to no interest. Is depositing it into my superannuation a better way for me? I work on a casual basis and have only done so for the past two years so have barely any superannuation contributions behind me.

That is really two separate questions:

  • Should I invest in something other than a term deposit?
    (This is an investment decision)
  • Should I put money in my own name or into super?
    (This is a tax structure question)

If you don’t need to spend that money over the next few years and you can accept some ups and downs in the short term, then yes, you should look at other investments for at least some of that money to provide you with a higher return.

That could be either in super or outside super.

Generally, for someone your age it’s prudent to look to contribute funds to super as you may achieve tax benefits and as you are getting closer to retirement you are not locking the funds away for too long.

However, your situation may be different. Take into account you cannot touch the funds until at least age 60, and if you are not paying any income tax, then super may not be best for you.

Many super funds offer personal advice over investment choice and contributions to super at no additional charge. You should speak with your fund about this.

Question 3. I’m unemployed, my rent is $540 a fortnight (which I recognise is cheap rent) but that is still nearly 70 per cent of my income. What do you suggest I do without, food, gas, electricity, transport, phone or internet?

Seventy per cent of your income to housing costs is not at all sustainable.

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Unemployment is at a near 50-year low in Australia, so now may be the best time to see if you can secure a job.

Other than that, you would need to look to move in with someone, share the rent costs and/or seek assistance from a charitable service such as Foodbank.

In an emergency, there are services to help you with food, housing and bills, as well as emotional support.

If you don’t know where to start, call the free National Debt Helpline on 1800 007 007. The helpline is open Monday to Friday, 9.30am to 4.30pm.

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Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives. 

The New Daily is owned by Industry Super Holdings

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