???I am 48 and have a self-managed super fund with my 46-year-old wife. About four years ago our SMSF bought $240,000 worth of Arrium shares. Unfortunately, they have gone bust and we have lost all our money from this investment. We are obviously devastated by this financial loss to our superannuation funds. How do shareholders ordinarily get rid of worthless shares in their portfolios? We have never had this occur and are too embarrassed to ask our accountant. Can you give some advice of a general nature? A.N.
A company that goes into liquidation can sometimes see assets sold and some money returned to shareholders, although it is rare after all creditors have been satisfied.
So before investors can write off their shares and claim a 100 per cent capital loss, the Tax Act requires that the liquidators must issue what is known as a "Section 104 declaration", stating that they " ??? have reasonable grounds to believe there is no likelihood that ??? shareholders ??? will receive any distribution ???"
The S104 declaration for Arrium was issued by the liquidators, from Kordamentha, on December 15 and you are thus able to declare a $240,000 capital loss which can be carried forward to offset the next $240,000 of capital gains in your super fund.
If I remember right, there were quite a few warning signals before the company called in voluntary liquidators in April 2016. The price fell from a peak of about $1.52 in January 2014 and by September had halved in price and was selling on an ultra-low price earnings ratio of some 3.3 and a yield in double figures, which is always a trap for the unwary.
Have you changed your stockbroker?
I am considering investing $20,000 for each of my children into superannuation (they are currently five and three years old). If I add enough to their accounts annually to negate fees and it's an investment over 60 years then, using a basic compound interest calculator a 5 per cent return averaged over 60 years might yield $350,000, 7 per cent return over 60 years, $1.2 million or 9 per cent return, $3.5 million. This would not include money that they would contribute via traditional earnings contributions. What will happen when they reach the $1.6 million superannuation cap? Do you have any other suggestions for ways to invest this money? K.E.
You make the interesting point as to just what a difference an extra 2 percentage points a year can do when compounded over a lifetime.
That said, I suspect you are looking too far ahead. Your children are going to have more immediate, and expensive, needs long before they reach age 60. For example, if you want to send them to a top private school, you are already looking at between $20,000 and $35,000 a year. Then, if they wish to go to university, there are further costs.
After education, they will presumably want to travel, buy cars and property and, given the current costs of properties in Australia's capital cities, they might need all the help they can get towards a deposit for a home.
So unless you feel you can cover all those other needs, I'd rather you placed the $40,000 in a high growth fund, or an Australian shares fund, that has performed well compared to its peers and is offered by a stable and reputable fund manager, two examples being Vanguard's Diversified High Growth Index and Colonial First State's FirstChoice Wholesale Multi-Index High Growth funds.
I am 67 and retired on a public service pension. My wife is 57 and hopes to retire at age 60. She is in the Public Super Scheme (PSS) and is also putting money into a superannuation fund. Because of the effect of the transfer balance cap in 2017, I withdrew my account-based pension fund money and placed it in an offset account against our current mortgage, which is very low. I am not able to put the money back into ordinary superannuation as I have no intention of re-entering the workforce. We have committed to buy a $550,000 townhouse off-the-plan to expand the family property portfolio and thereby ultimately help our adult son and daughter. The property should be ready in mid-2018. Our questions: 1. It is better for the new property to be in my wife's name as she would be able to negatively gear it for about two years before retiring and then pay out the mortgage on retiring using the balance of the funds I withdrew from my account based pension. 2. Because of the transfer balance cap, I should not be in the mortgage because it would make my tax situation worse. Is assumption one above the basis of the way to proceed, or would it be better to pay the new property outright in 2018 and thereby put us in a good equity position to buy a third property? A third property purchase might let us reserve our current residence as security should either or both of us have to go into aged care at some stage in the future, although we are both currently in reasonably good health. It might also make it easier for our son and daughter to inherit one house each. T.M.
I assume you receive a public service pension which, when multiplied by 16, would equal or exceed the transfer balance cap of $1.6 million and the super pension thus comes to $100,000 a year or more.
If you are intent on keeping the townhouse, and you have the money to buy it outright, then why take out a loan? Negative gearing allows you a deduction for a loss, but it's still a loss.
It would help if I knew how big a loan you were planning for the townhouse, how much income your wife is getting, how much she has in super and what other assets you might have that you could put towards a third property.
In the absence of that information, I can only make some general comments. If you are going to help an adult child to buy a property, it is better to contribute towards a mortgage on their home, as their main residence is free of capital gains tax. If your off-the-plan contract allows for an alternate purchaser, and one of your children has no home, then since you can afford to pay off the full amount, why not offer a mortgage of, say, 50 per cent or $275,000, and thus allow the child to own the townhouse, with a comparatively small mortgage of their own, and do the same for the other child.
It sounds as though you then have sufficient assets to consider a third property. Given that recent statistics indicate property prices are starting to drift down, I don't think this is the right time to be buying multiple properties.
If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Help lines: Financial Ombudsman, 1800 367 287; pensions, 13 23 00.