Nick Bruining Q+A: Should I shift inheritance money out of bank term deposits and into my super?

Question

I am 59 years old, mortgage-free and currently in the highest marginal tax bracket.

From an inheritance received two years ago, I have a number of term deposits earning various interest rates.

I understand there may be tax advantages in adding this cash to my existing superannuation fund, which has a little over $760,000 invested.

Would this be a good strategy, because once I turn 60 I understand I can access my super at any time?

Answer

You have correctly identified that there are many super funds offering term deposits within their investment options.

However, be aware that, for many of them, the choice is often limited to a handful of banks and a limited range of terms. The rates on offer rarely reflect what you can obtain as a retail investor.

Also be aware that because the trustee is regarded as a single entity, collectively all the term deposits probably exceed the $250,000 threshold for the Financial Claim Scheme guarantee to apply.

By placing the money into super as a concessional contribution, you may be able to claim a tax deduction for the contribution, though a contributions tax of 15 per cent will apply. If your adjusted taxable income exceeds $250,000, the contributions tax would increase to 30 per cent, but that is still significantly less than your marginal tax rate of 49 per cent, including the Medicare levy.

You would be restricted to the annual $32,500 contribution cap or limit which includes what your employer contributes.

If your total superannuation balance was less than $500,000 on June 30, you may be able to make use of special carry-forward rules. In simple terms, this allows you to contribute and claim up to $175,000 this year, less any concessional contributions made over the preceding five financial years.

If you make a non-concessional contribution, no contributions tax is deducted as no tax deduction can be claimed.

While there is a $130,000-a-year limit with non-concessional contributions, you can probably make use of the “bring-forward” rule, which will allow you to contribute three years worth of contributions in a single year, or $390,000.

Your understanding of the accessibility rules is slightly incorrect. To access superannuation, you will need to have “ceased gainful employment since turning 60”.

That condition does not require you to cease all employment after turning 60. You could, for example, start and cease a part-time job after reaching 60, and that would satisfy the condition.

Question

I recently inherited my mother’s home, which my parents bought in the 1960s for $12,400.

When we applied for probate a few weeks ago, the property was valued at $1.8 million.

It is my intention to sell the property before the new tax laws start next year, but I am confused about the capital gains tax situation.

How would this be calculated?

Answer

As the home was your mother’s primary dwelling, the capital gains tax exemption will continue to apply if you decide to sell the property within two years of her death.

If your mother died more than two years ago, capital gains tax may be payable on the increase in value from the date of her death until the time it is sold.

Other more complicated rules will apply beyond July 1 next year.

If the two years have already passed, you will need to obtain a formal valuation rather than rely on your estimation or a real estate agent’s appraisal.

The amount of tax payable will depend on your other income in the year the home is sold. In very simple terms, half of the profit will be added to your other income and you will pay the marginal tax rate applicable to your total income for that year.

Depending on your age and other contributions to superannuation, you may be able to reduce the tax liability by making a personal tax-deductible concessional contribution to super.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association