I have recently been charged $4500 in Division 293 tax (similar to last year and likely to continue going forward), and I wanted to get your view on whether it is more appropriate to have this paid from the offset account or deducted from my super.
I am 54 and my husband is 58. I have about $600,000 in super at present, and my husband has about $530,000. We have a $750,000 mortgage on a home valued at about $2.5 million, with about $400,000 sitting in the offset account.
My inclination would be to pay it from the offset account, as $4500 left in your super to compound for the next 30+ years will almost certainly be worth more than the interest you will save via the offset.
Additionally, you are constrained in how much you can get into super, so you can’t easily replace the $4500 withdrawn, whereas you are unconstrained with how much you can put into the offset account.
Also worth mentioning, given your age, balance sheet and levels of income, is that you would probably get an enormous amount of value out of a financial planning relationship. Often people wait to establish that relationship until retirement is a year or two away, but there can be a far greater impact if you begin work in the decade or so prior.
I’ve recently been made redundant from a university, and while I had my eye off the ball, my super fund went ahead and kicked me out of the defined benefit component of my account and sent an email saying it’s all in accumulation now. Am I worse off?
Under a defined benefit plan, the provider accepts all the investment risk. You receive a benefit derived from a mathematical formula driven by years of service and final average salary.
Accumulation accounts, which are more typical, leave you the account holder accepting the risk of market fluctuations. Given this fundamental difference, you can hopefully appreciate why defined benefit funds are now so rare. Why would any employer want to accept that investment risk? All the more so if you are no longer working for them.
It’s not the case that one type of fund will always deliver a superior retirement outcome compared with the other. If you invest your accumulation account with a strong bias towards growth assets, it is quite conceivable that you will end up with a superior retirement result.
My sibling and I own our house as joint tenants and have lived together for the past 20 years. All our household bills and utilities are paid from a joint bank account that we both contribute to monthly. We share all household duties, maintenance and upkeep. We have nominated each other as interdependent beneficiaries of our superannuation.
On either of us passing away, will the Tax Office and superannuation fund consider us as interdependents for tax purposes?
For other readers, the significance here is that superannuation can pass to an interdependent person tax-free upon death. A spouse is the most common form of interdependency, but interdependency can also exist in other forms, with the most common that I have come across being where a parent continues to support an adult child, perhaps due to some form of disability.
From what you describe here, it certainly seems to me that you would meet the criteria for interdependency. You live together and provide financial and domestic support to one another. For complete certainty, you should consult your lawyer.
Paul Benson is a Certified Financial Planner at Guidance Financial Services. He hosts the Financial Autonomy podcast. Questions to: paul@financialautonomy.com.au
- Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own 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.
