Recently you made some alarming comments in relation to the future of super and the age pension. I agree that the age pension is vulnerable to government cuts, however surely super is our own money, not the government’s. Can you explain what you meant by the words “government cutting super benefits” and the possibility of our not being able to “rely on super” as a future investment vehicle?
Nanjing Night Net

Every investment you make has advantages and disadvantages. For example, if you leave your money in the bank, instead of investing in shares, you negate the risk of your capital falling in value in a market downturn but you forgo potential capital gain and the tax effectiveness of franked dividends.

Apart from lack of access, the main disadvantage of placing money in superannuation is “legislative risk”, which is a fancy term for saying the government may change the rules. Just this year they have dramatically reduced the amount that could be contributed to superannuation, increased the contributions tax on concessional contributions made by high-income earners, and severely reduced the amount that can be held in the tax-free pension mode. This is why I believe a prudent investment strategy involves investing both inside and outside the superannuation environment.

Is there a general rule on how best retirees aged 65 or more might fund the purchase of a new motorcar? Do we sell shares, or cash in super or is there a smarter way to fund purchase of a depreciating asset?

It’s best to avoid borrowing at your stage in life so my preference would be to withdraw some money from your super. The reduction in the balance may well increase your age pension if you are getting one, and if your assets are in excess of the age pension limits I see no reason why you should not enjoy your money while you are alive. Just keep in mind the best value motorcars are normally fairly new second-hand ones.

If I were to invest in a managed fund using a family discretionary trust and nominate profits to be automatically reinvested into the fund, how would the reinvestment be taxed? Is it better to nominate for the profits from the managed investment funds to be paid out to the trust and have the trust distribute it to the beneficiaries?

It is my understanding that all managed investment funds send you a statement for the 2016/17 tax year and, you subsequently distribute the returns from the fund to the beneficiaries of your family trust. Do the beneficiaries declare these in their 2016/17 individual tax return even though it would have been received after June 30, 2017?

If a discretionary trust is taxed on its profits rather than distributing them, the profits will be taxed at the maximum tax rate so in most cases a trust is simply a conduit from which the income of the trust is distributed to its beneficiaries. The term “discretionary” trust means that the trustees have the discretion at the end of each financial year to decide which beneficiaries the trust income is to be distributed to. They also have the power to vary the distributions between beneficiaries for tax minimisation purposes.

If the income from the managed funds owned by the trust is reinvested, it will still be considered to have made a profit for tax purposes just as if it had been paid in cash to the trust. If the entire income has been reinvested the trust may not have the funds available to make cash distributions. If that is the case the beneficiaries will probably lend the money back to the trust as a journal entry. This could create a problem if one of the beneficiaries is a company.

Unless specified differently in the trustee’s distribution statement the tax statement provided by the fund will be apportioned between the beneficiaries on the ratio of their share of the trust’s income.

I am a pensioner aged 73. My partner is 58 years old. She could possibly get a reasonable inheritance in the near future. If she puts this money into super would it still be protected up to her pension age if I had to go into aged care? I am concerned that she would have no money after I passed on if it was used up on my aged care.

Money in superannuation is not assessed for Centrelink purposes until the member reaches pensionable age, provided the money is in the accumulation phase. However, it does become assessable if the member commences a pension from the super fund. Just keep in mind there are limits on the amount of money that can be contributed to super.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature. Readers should seek their own professional advice before making decisions. Twitter: @noelwhittaker

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