In a recent discussion on superannuation strategies, independent financial adviser Nick Bruining confirmed that transferring funds from GESB superannuation to the retirement phase could significantly increase an individual’s age pension. With a balance of $350,000 in accumulation phase, the financial implications of such a move warrant careful consideration.
Bruining explained that GESB superannuation, which includes the State Government’s GoldState and WestState schemes, operates under unique taxation rules. When funds are accessed, a tax of 15 percent is applied to the untaxed portion of the total balance. Additionally, individuals must also account for the Medicare levy, which is at least 2 percent. Notably, only the untaxed component incurs this tax; any tax-free or exempt portions remain unaffected upon exit.
Transitioning to a conventional taxed superannuation scheme allows individuals to pay the 15 percent tax directly to the Australian Taxation Office without incurring the Medicare levy. This shift can lead to a reduction in assessed asset value, which is crucial for those undergoing asset testing by Centrelink. For every $10,000 decrease in assessed assets, recipients may see an increase of $30 per fortnight in their age pension benefit.
Moreover, Bruining highlighted that the tax paid effectively generates a return of 7.8 percent for life through the increased pension benefits provided by Centrelink. This presents a compelling case for individuals to consider their options carefully, as remaining within the GESB framework may limit access to potentially superior funds with greater flexibility and better returns.
In another query, Bruining addressed concerns regarding changes to capital gains tax laws and their implications for investments. He confirmed that the tax position regarding interest on borrowings to purchase shares remains favorable. If the interest exceeds the income generated from those shares, the resulting loss can indeed be claimed against other income.
The tax laws treat various asset types uniformly, meaning that expenses incurred to generate tax-assessable income, including management fees and interest costs, are deductible. In the case of margin loans, where shares serve as collateral, lenders typically provide funding up to 75 percent of the total portfolio value. The fluctuating nature of shares may lead to margin calls if asset values dip below predetermined thresholds.
For investors, it is essential to recognize that while leveraging funds can enhance potential gains, it can simultaneously amplify losses. Bruining advises that those interested in margin lending should weigh the benefits of positive gearing outcomes against the risks of negative gearing.
As the financial landscape continues to evolve, individuals are encouraged to seek personalized advice from qualified professionals like Nick Bruining, a member of the Certified Independent Financial Advisers Association, to navigate their unique circumstances effectively.
