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Questions and Answers

Read below for our money coaches' answers to our readers most burning questions on Financial Planning, Investment, Superannuation, Property, Accounting and Tax Planning

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June 2012

Q. In your Money Weekly column on Yahoo!7 Finance, you wrote: “Some might say, but hang on isn't there capital gains tax to pay? The answer is yes, but if the investor did not own a house, they could move in to the property only for a short time, and under the tax rules, the capital gains tax meter would go back to zero. The vital time period is six years.” Can you please explain more about the above and the vital time of six years? Alison, Montmorency, VIC, Answer

Q. Dear Peter, I have an investment property that I am considering selling before I take my CSS pension. I am 53 and not working. I am wondering would it be possible to set up a DIY super fund and purchase the property and put the capital gains tax owed into the fund as an unfunded contribution? Many thanks for any information you might give, Mary, Address withheld, Answer

Q. Hi Peter, we seem to have a problem with people having enough in superannuation when they get to retirement, but imagine if they could start really early. This may sound like a really crazy idea, but what if the government put some of the baby bonus money into superannuation for a person when they were born? Even if only a few thousand dollars went into a low-fee super account at birth, it could make a big difference to a person’s final superannuation amount at retirement and save the government making payments in pensions 65 years or so down the track. If I wanted to start a savings account for my two-year old now to be used for education expenses, etc., what is a good way to do it? Ian, Werrington, NSW, Answer

May 2012

Q. I currently have a car loan that I am trying to pay off as soon as possible ($30,000). I am wondering whether it would be wise to sell my shares ($25,000) to smash over the debt so I can start with a clean slate for the new financial year. I realise it is not a great time to sell shares, but figure it’s better to have no debt. Thanks, Dayne, Dee Why, NSW. Answer

Q. My partner and I have been running our own small business for six years. Sadly, we have been forced to close, but have $50,000 put aside. We currently rent, and both are now in the position of finding jobs. Can you provide us with some advice on the best way to use this money to secure our future? We are considering several options:

•    Buying land and holding onto it for retirement years
•    Buy a family home
•    Buying a cheaper investment proprety

I am 34, my partner is 40. What is our best move? Marie, Seven Hills, NSW, Answer

Q. I will soon be retiring with a lump sum of $300,000 super. Should I get an allocated pension for the full amount or should I get an allocated pension for half the amount and buy blue chip shares with the other $150,000? I have been told that blue chip shares are low at the moment and their dividends would provide an income stream. My husband is a retired teacher and has retired on a government super pension. If you advise me to buy shares, I would buy 1,000 shares in any of the following companies: BHP, Westpac, NAB, Woolworths, Wesfarmers and QBE insurance. Do you think this strategy is a good idea? Regards, Bev, Copacabana, NSW Answer

Q. Can I borrow to buy shares or property in my super fund? Thanks, Ray, Melbourne, VIC, Answer

April 2012

Q. Hi Peter, What is the benchmark for us to look at when is the best time to fix up the mortgage. Is it soley based on the BBSW? Tracey, Parramatta, NSW, Answer

Q. Hi Peter, I am due to retire at the end of 2010 on a SSS pension. I am 58 and my wife is 56. We currently owe $150,000 on our home which is valued at $400,000. We also have an investment property ($340,000), which is made up of $228,000 loan (fixed at 7.7 per cent for a further 16 months) and a portfolio loan incorporating our main home loan and $122,000 for the investment. My salary is $58,000 and my wife's salary is $78,000. My wife's super is $80,000. I have just inherited a half share with my sister of our mother's home (which she owned and lived in for 28 years) worth $600,000. Do I sell the investment property or the inherited property or both? Or should I hold onto both properties until the market recovers? Neither my sister nor I can afford to buy each other’s share of the inherited property. What are your thoughts? Trevor, Glemore Park, NSW, Answer

Q. Dear Peter, I currently have an allocated pension with AMP. Since December 2007, I have seen AMP shares fall from 10.55 to 3.59 in March 2009. Because of this, the value of my pension has dropped over $100,000 in value. My question is what happens to AMP (or any other company) when their shares fall to such a low (or even lower) level? Does it mean investors are losing confidence in the company? And what happens if AMP should ever drop to below $1? Regards, Gerry, Port Macquarie, NSW. Answer

March 2012

Q. Hi Peter, I'd like to build a duplex and use one side as my principle place of residence for 12 months before selling it. Then I'd like to move to the other side and repeat the process. Is it possible to do this and minimise tax? The time frame can be around three years if necessary. I am on a pension and would have to borrow about $150,000 to complete the project. Thanks, Ann, Maroochydore, QLD. Answer

Q. Hi, I recently received a payout resulting from an illness I have. I will live a long life, but I will never work again. I’m 38. My problem is that I have $80,000 sitting in a web-saver account and am not sure what to invest it in. I realise if you don’t take great risk, you don’t get great rewards but as I won’t work again I have to be somewhat reserved (I think) when dealing with this money. What suggestions do you have for me? I am on a pension. Please help. Thank you, Helen, Gympie, QLD. Answer

Q. Following the devastation in Victoria, many families now have to ‘mop up’ and deal with the estates of loved ones. With all visible evidence of information (super, insurance, investments, home ownership, etc.) completely gone in many instances, is there any advice that can be given to help those families track down and piece together some of these estates? In a recent discussion with a few associates, we posed this hypothetical question (fortunately, none of us have this situation to deal with) and struggled to comprehend the enormity of such a task. Can you help? Steve, Werribee, VIC. Answer

February 2012

Q. Hi Peter, I recently sold my apartment, freeing up approximately $100,000 in equity. My partner and I are looking to upsize, so we have decided to rent for the short to medium-term on the assumption that, at best, the market will be flat in 'real' terms for the next two or three years, and, at worst, still has considerable downside to come. My preference is to rent for now and wait to see what unfolds. So long as capital values are not increasing, I see renting as the more favourable and cost-effective option. With cash rates now reducing as fast as interest rates, what is the best strategy for investing my $100,000? Would I be wise to consider investing in the sharemarket (blue chips) with a longer-term strategy? If we are buying a house in three or four years, we could use that period to save hard to cover the deposit. Thanks, Chris, Melbourne, Vic, Answer

Q. I am about to receive an inheritance from Canada amounting to around $300,000 to 400,000. I have a $400,000 home, am 46-years old and have a wife and three-year old son. Should I use all of it just to pay down the mortgage? I would also like to invest some of it to try and to make some money. I was even thinking about options to invest in. What is your advice? I was thinking also of seeing a financial planner, but a book I read by Jamie McIntyre claims all financial planners have vested interests in steering you to invest certain ways. Any comment? What should I do? Thanks, John, Wanniassa, ACT, Answer

Q. My husband is retiring in three to four years time. Last year, our super went down. We have it with ING; we placed it in the high area about three years ago. He is only working part-time. Last financial year, it was valued at approximately $100,000. I am concerned that this year it will again be low. I spoke to the person at ING and they told me to leave it where it was, as the market will rise in time and we will be there when it does. Am I being foolish? The way it is going, we will have nothing to retire on. Should I leave it there and hope for the best? Or should I put it in a more conservative area? Margaret, Forest Lake, QLD, Answer

Q. Hi Peter, First of all, thank you for being positive. I read your recent article in The Sunday Telegraph, and it was really positive. I think we need more people like you to get the message across that we will get through this tough period. My question is about Leighton Holdings. I recently bought over 2000 shares at $22. I have a medium to long-term view on the stock. I think the reaction to the write-downs is overdone. Could you please provide me a brief guidance on the stock? Also do you think that recent $4 billion rescue package by Rudd will be beneficial for stocks like Leighton? Thank you, Uday, Sydney, NSW, Answer

January 2012

Q. Hi Peter, I am currently investing $25,000 salary sacrifice into my employer super fund. On top of the 9 per cent and additional 5 per cent invested by the company approximately $40,000 goes into this fund. As a long-term employee of this company, I have close to $600,000 in this super fund. I have seen it lose (understandably) almost $45,000 in the last 18 months. Should I stop salary sacrificing and invest that $25,000 into reducing my $180,000 home loan? Or should I just ride out the storm? Thanks, Joe, Nagoya, Japan, Answer

Q. Hi Peter, My mum is 67 years old and still working full time. She works for a refuge and is struggling to pay off both a mortgage and a HECS debt, both taken on at a late stage in her life. She salary sacrifices her mortgage repayments and as such it shows on her group certificate as fringe benefits. My question is this: last year her gross earnings were $30,500 and her fringe benefits $28,186. At tax time she was hit with a huge bill from HECS because the fringe benefits were added onto her income. We were of the understanding that a large portion of it wasn't to be counted as gross income. Do you think she is going about things the right way? Is salary sacrifice working for her or is there some other way she could be doing it? Thanks so much for any help you may throw my way! Alexander, Sydney, NSW, Answer

Q. I am 25, have been out of university for two years and am keen to start creating my wealth! I am self-employed so my income fluctuates weekly, making saving very difficult as I don’t get tax taken out of my pay or super. My estimated income for this year is around $50,000 to $60,000. I have a scary ($53,000) HECS debt, $10,000 remaining on a car loan and dismal savings of only $3,000. I am trying to pay off my car loan as soon as possible so I can start saving towards a home deposit. How much should I set aside for tax and super? Do I still qualify for co-contribution benefits for super? Should I be worried about making a dent in my HECS debt at this stage, or is my money better off in a super or savings fund? I would also like to get a personal loan of $10,000 to invest in shares. What are your thoughts? Thank you very much for your time! Kim, Sydney NSW. Answer


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