Never make investment decisions just to save on tax

My husband and I have two investment rental properties that we have been negative gearing for nearly 10 years. They did not run at a loss for the 2022 tax year. He earns $130,000 per year and relies on this to reduce his taxable income. I earn $77,000 a year. To reduce our tax in the future we wonder whether we should buy another property, sell the property and buy one that’s 100 per cent geared, or spend money on the other properties. One of the properties is currently not paying any interest as it is totally offset by our savings. I was advised years ago to commence paying off the biggest loan after we paid off our own home loan.

You should never make investment decisions with the sole aim of saving tax. Any tax savings should be the cream on the cake. To sell one property and buy another could be a costly exercise because there may well be capital gains tax on the sale, and of course stamp duty and other costs on the purchase of the new property.

Buying another investment property as a tax-saving measure could end up unexpectedly costly.Credit:Simon Letch

But even if you did buy a property in your husband’s name for say $500,000, and borrowed $500,000, the net rent should be at least $15,000 a year and the interest should be around $30,000 a year. He is in the 39 per cent tax bracket so a loss of $15,000 would save him just $5850 in tax and he would still be paying $9150 out of his own pocket to make up the shortfall.

A better option may be to maximise your tax-deductible contributions to superannuation – you are allowed $27,500 pa each including the employer contribution and enjoy the fact that your investment properties are now contributing to your income not detracting from it.

My wife is 65 and I am 63. We have $850,000 in super between us. We made a gift of $100,000 to our daughter in 2021 to help her buy a house, and we want to make a similar gift to our son later this year. We plan to transfer the money to our son’s bank account, will that be okay? We understand any gift made in the five years before applying for the age pension will be deemed an asset. When we eventually apply for the age pension, what kind of proof do we need to produce for the money given to children as a gift?

Given your age, you are free to make gifts without limit whenever you wish, and as you point out gifted money is held as a deprived asset for five years from the date of the gift once you are eligible for the age pension. I’m sure the fact that the money went into the recipient’s bank account would be sufficient evidence for Centrelink.

I am 63, earn $152,000 a year and salary sacrifice to the maximum. You have mentioned that people nearing retirement may be better off focusing on contributing the maximum to the superannuation, instead of paying down the mortgage. Given the fact that interest rates are on the rise, and superannuation returns may be somewhat doubtful over the next two years given the state of the world, I wonder if I’m better off simply paying down the mortgage.

Because of the way numbers work the rate does not matter very much if the term is short. In your case, you may be just two years from retirement and are already maximising your contributions to superannuation. I agree that rates are rising, and superannuation returns cannot be guaranteed over the next two years, so I suggest focusing on paying back your mortgage is a good way to spend your surplus funds.

I am 67 single and retired, with approximately $400,000 in super in pension mode which I withdraw $2100 per fortnight. Furthermore, I have just started receiving $400 a fortnight in aged pension. I owe $200,000 on my home, and I am thinking of paying off my mortgage and hopefully receiving a full pension. I am planning to reduce my super pension to $800 a fortnight. Is this a good strategy?

Yes, by using money from your superannuation to pay off the home loan, you will be saving interest, and should certainly get your assets down to a level where you would get the full pension.

The amount you withdraw from your super fund does not affect your age pension under the income test because it’s given a deemed income. But if you can live with on the full pension plus $400 a week from your superannuation, reducing the amount you draw from your super will it room to grow – this may be very useful to you in the future.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. Email: [email protected]

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