Paying the taxman from super, defined benefit funds, and interdependency
I was recently charged $4,500 in Section 293 tax (similar to last year and will likely continue in the future) and I wanted to get your opinion on whether it would be more appropriate to pay it out of the offset account or deduct it from my retirement.
I am 54 years old and my husband is 58 years old. I currently have about $600,000 and my husband has about $530,000. We have a $750,000 mortgage on a house worth about $2.5 million and have about $400,000 sitting in the offset account.
My inclination would be to pay it out of the offset account, as the $4,500 remaining in your retirement fund over the next 30+ years will almost certainly be worth more than the interest you’ll save through offset.
Additionally, you’re limited on how much you can put into the retirement fund, so you can’t easily replace the $4,500 withdrawn, whereas you have no restrictions on how much you can put into the matching account.
It’s also worth noting that, given your age, balance sheet, and income level, you’ll likely get a tremendous amount of value from a financial planning relationship. Often people wait until a year or two before retirement to establish this relationship, but it can have a much bigger impact if you start working a decade or so earlier.
I was recently expelled from a university and while I was away from it my super fund kicked me out of the defined benefit component of my account and sent me an email saying it was all in savings now. Is my situation worse?
Under a defined benefit plan, the provider accepts all investment risk. You receive a benefit derived from a mathematical formula based on years of service and final average salary.
More typical savings accounts allow the account holder to accept the risk of market fluctuation. Given this key difference, I hope you can understand why defined benefit funds are now so rare. Why would any employer want to accept this investment risk? Especially if you no longer work for them.
It is not possible for one type of fund to always offer a superior retirement outcome compared to another. If you invest your savings account with a strong bias towards growth assets, you are very likely to achieve a superior retirement outcome.
My brother and I are joint tenants of our home and have lived together for the last 20 years. All our household bills and bills are paid from a joint bank account to which we both contribute monthly. We share all household chores, maintenance and repair work. We nominated each other as independent beneficiaries of our retirement.
When one of us dies, will the Tax Office and the pension fund treat us as dependent for tax purposes?
The important point here for other readers is that pension rights can pass tax-free to an independent person upon death. Spouse is the most common form of codependency, but codependency can also exist in other forms; The most common situation I encounter is where a parent continues to support an adult child, perhaps due to some type of disability.
Based on what you’ve said here, it seems to me that you definitely meet the criteria for interdependence. You live together and provide each other with financial and domestic support. You should consult your lawyer to be completely sure.
Paul Benson is a Certified Financial Planner. Guidance Financial Services. He is hosting Financial Autonomy podcast. Questions: paul@financialautonomy.com.au
- The advice given in this article is general in nature and is not intended to influence readers’ decisions about investments or financial products. They should always seek their own professional advice, taking into account their personal circumstances, before making any financial decisions.
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Paul Benson is a Certified Financial Planner and host of the Financial Autonomy podcast.
