Question: I currently subscribe to the Switzer Report. My wife and I have been receiving the CSHC (Commonwealth Seniors Health Card) for the past six years as we have had superannuation income and no taxable income.
In December, 2016 we sold a townhouse we have been using for holidays since 1992. This has created a capital gain of $168,000 and 50% of this is taxable between the two of us in our 2016-2017 tax year. This together with a taxable amount of $5,000 each from share income makes our taxable income $94,000 between the two of us. This puts us over $84,472 allowable for a couple and we will now lose the CSHC and will have to reapply for it.
In the 2017-2018 financial year, we will again have no taxable income but will have to take into consideration our superannuation income due to the new rules and as our superannuation income is above the $84,472 we will not be eligible to qualify for the CSHC. We are over the limit for the 2016-2017 financial year by about $10,000. Is there any way we can spread this over more than one year and reduce our taxable income?
Answer by Fabian Bussoletti, Technical Services Manager with AMP Advice:
While the reason behind the sale of your former holiday home is unclear, it is worth noting that in certain specific circumstances, it may be possible to qualify for the CSHC based on your estimated Adjusted Taxable Income (ATI) for CSHC purposes for the 2017/18 financial year, provided that the estimated income falls within the income test threshold.
This may allow you to retain your CSHC notwithstanding the sale of your holiday home as your 2017/18 income year estimate would not include the capital gain amount. Depending on the circumstances surrounding the sale of the home, this may warrant further investigation.
Otherwise, unfortunately there is no way of spreading out the “income” (capital gain) arising from the sale of your former holiday home.
In relation to your superannuation income stream, assuming your superannuation income stream is an account based pension (ABP), it is worth noting that it is not the actual income you receive from such a pension that is added to your ATI, but rather an amount that you are deemed to be receiving from the ABP.
This deemed income figure is calculated based on the account balance of your ABP and a set of Government prescribed deeming rates – which means that the deemed income from your ABP may in fact be less than the amount that you are receiving from the ABP.
If required, a reduction in the account balance of an ABP will in turn reduce the level of deemed income that is assessed toward your ATI for CSHC purposes under the new rules you mentioned.
One way to reduce the account balance of an ABP may be to simply transfer an amount from your ABP back into the superannuation accumulation (or savings) phase. However, investment earnings derived in the accumulation phase will be taxed at a maximum rate of 15% (as opposed to the 0% tax rate that applies to earnings derived within an ABP) – this trade-off will need to be carefully considered.
Finally, it should also be noted that there are also likely to be other considerations when moving money out of your ABP, such as estate planning considerations. As such, it is imperative that you seek professional advice that is specific to your circumstances to ensure the best possible outcome is achieved for you, and that any considerations are appropriately addressed.
I am not aware of any underlying problems with URB. Rather, the stock is very thinly traded, and trading at a small discount to its last disclosed NTA of $1.03 (end September).
Question: I read your article on the 16 October re TCL, which made sense to me and I purchased TCL. I have now read Charlie Aitken’s article on Thursday and am concerned with what he had to say about TCL. What is your response? I also own SWTZ and wonder what you have both come up with for the trust re TCL and similar entities?
Answer (by Paul Rickard):
Thanks for the question. I don’t disagree with Charlie in that if bond rates go up, there will be capital losses and a number of the equities with bond like features will be impacted. This is what happened in October through to December 2016. Where I disagree with Charlie is:
- the pace of bond rate increases; and
- the impact on Transurban (TCL).
Charlie fears that the US 10-year-bond could quickly rise to 3.0% – I don’t think this is going to happen unless the US economy really shows a head of steam, or the new Federal Chairman takes a more hawkish view. In regard to TCL, I think it is wrong to think of it as a bond substitute because it is growing revenue at a CAGR of around 8% to 10%, and although very leveraged, all borrowing are fully hedged. That doesn’t mean, however, that the market won’t view it initially as a bond substitute – but over the medium term, they will reassess it for what it is worth.
Here is how I concluded my article: “While I have been largely wrong so far, I think bond rates will head higher over the next six to 12 months as the US economy expands and the US Federal Reserve tightens interest rates and winds back its balance sheet. This will affect bond proxies such as Transurban, although the lesson from last October/November is that dips will be well supported. If you can afford to be patient, look to buy Transurban in market weakness or on the next blip up in bond rates.
Question: In April 2017 I bought 10,000 shares in the URB Investments Ltd share offer. I know infrastructure investments take time to mature, but I am surprised by URB’s volatility. For example, yesterday they fell 4% for no apparent reason. My question – is URB’s volatility due to being thinly traded, or are there underlying fundamental problems?
Answer (by Paul Rickard):
I am not aware of any underlying problems with URB. Rather, the stock is very thinly traded, and trading at a small discount to its last disclosed NTA of $1.03 (end September).
Question:
1) I have Woolworth shares, shall I keep them?
2) Do CSL and Cochlear have more upside? Is it time to take profits?
Answer (by Paul Rickard):
I’ll start by a quick recap on what the major brokers say (according to FN Arena);
- Woolworth: 3 buys/1 neutral/3 sells – target price $26.18 cw last price of $26.31
- CSL: 6 buys/1 neutral – target price $140.77 cw last price $140.40
- Cochlear: 4 neutrals, 2 sell – target price $142.97 cw last price $174.65
CSL and Cochlear are fabulous companies, trading on very high multiples. The market seems scared to sell them, since there are so few companies that can demonstrate the growth record they have. On the basis of the broker valuations, I would be inclined to take profits (moreso with Cochlear than CSL). I would, however, look to establish new buying points. Woolworths is in a different category. Unfortunately, it is an industry facing headwinds as competition intensifies. That said, I was impressed with the quarterly sales results (particularly the improvement with BigW) and I think the rally of around 3% in the share price is appropriate. They have momentum and are probably a hold – but I think it is a sector to remain underweight in.
Question: I am an accountant by trade and enjoy managing my own SMSF myself. This includes keeping the books and completing the annual returns. Obviously I pay for an external audit. I use a program called MySF to keep the books of the SMSF, however, this program is no longer going to be supported. I was wondering if you could recommend any SMSF accounting/administration software programs for home use?
Answer (by Paul Rickard): Provided you are comfortable with a double entry system, try BGL’s Simple Fund 360 Trustee Edition. I use the non-cloud version (Simple Fund Trustee Edition) for my SMSF.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
