Ask Noel

I am 73 and retired. My wife is 68 and planning to continue part-time work for another six to 12 months - she currently earns $40,000 a year. We own our house, worth $1.2 million, have combined super of $1,230,000 and shares worth $115,000. We have no other assets and both draw the minimum pension. We plan to buy and move into a smaller house in the future, although such houses sell quickly in our area. We are reluctant to sell our existing house before finding a new home, as this would mean moving twice or spending some time renting. Do you have any suggestions for making this move, as experience indicates that banks will not provide bridging finance at our age? Should we seek help from our adult children or perhaps cash in our super?

I suggest you talk to a mortgage broker. Some banks offer what they call relocation loans, which are ideal for people in your situation, as there will be no residual debt when the property is sold. Another option is to seek vendor finance, but this does limit your choice of properties and reduces your negotiating power, as you will not be a cash buyer. Unless the property market is booming, a better option may be to sell first on a three- to four-month contract, which will give you time to find a new home. This may be cheaper in the long run than bridging finance.

My wife just started a job as a doctor in a medical centre and she earns 65 per cent of her billings at the centre. She is required to pay her tax and super. I am using e-tax to lodge her return. What is the best way to handle her tax - she is neither an employee nor a contractor, and does not use an ABN.

The accountant who does the work for the medical centre would be the best person to advise you and I certainly recommend that your wife uses an accountant, at least for the first year's tax return. It is likely she would operate as a sole trader with her own ABN, but it is possible the medical centre may have arranged this for her.

I understand from a recent article that a person with an income of less than $20,542 is not required to submit a tax return, although this could result in the person missing out on a tax refund if an employer had deducted tax during the year. If this is true, is it worth mentioning?

If you wish to apply for the co-contribution, you would certainly need to submit a tax return and, in any event, business people are required to lodge a tax return even if their income is very low. A benefit of lodging a return is that you will get your franking credits back. Lodging a tax return is the only way to get a tax refund - the problem for low-income earners is that the cost of lodging the return may exceed the tax refund.

I am 73 years old. Can you tell me whether income from investments acquired with a reverse mortgage would affect the pension?

It would be a very bad financial strategy to borrow money to invest using a reverse mortgage, because you would have to use high-return, high-risk investments to make a profit and you would be exposing yourself at a time in your life when you should be conservative. I have always recommended that people taking out a reverse mortgage use one that has a draw-down facility, and then only draw money from it as required. This minimises the interest, slows down the compounding effect and prevents Centrelink problems.

We are both in our early 60s, still working and intend to do so until about 65. At present we have $500,000 in super but also have a mortgage of $85,000 on our house, which we are trying to pay off as quickly as possible. Should we continue to pay extra into our mortgage or should we salary-sacrifice this amount into super? We could afford to pay $1000 a fortnight into super if we paid the minimum on our mortgage.

At your age, lack of access is not a problem, so I suggest you contribute as much as possible to super, even at the extent of making lower home repayments. This is because deductible contributions to super lose 15 per cent, which is usually much lower than your marginal tax rate.

I am thinking of buying a house and have saved 5 per cent of the cost already. The bank has advised that I qualify for a $420,000 home loan but my fear is my age. The repayment period for a home loan is 25 years. I don't think I will still be earning as much as I am now (or even have a job) in the next 10 years, as I don't think the boom will last that long.

It is certainly cheaper to rent than buy but most people do not invest the money they save by choosing to rent. I believe that buying your own home would not only give you security of tenure but also be a good investment if you buy well. Make sure you don't overcommit yourself, and use every spare dollar to reduce that mortgage as soon as possible. If you do this, the house should be paid off long before 25 years have passed.

We are pensioners and travelling by road. Our query is, if you don't own your own home as such but live in a motorhome, could it be taken off the assets list with Centrelink, and, also, can you claim rent assistance (caravan parks)?

If you reside in a campervan, caravan, transportable home or boat owned or partly owned by yourself or your partner, you are considered to be home owners. You can receive rent assistance if you pay more than the threshold amount of rent according to your family circumstances, and the value of the transportable home can be exempted. The Financial Information Service people at Centrelink will be able to give you more information - the rules are somewhat complex.

I am puzzled by your comments in a recent online article regarding a 25-year-old's question in relation to personal debts. You answered: ''Focus all your energies on paying off the smallest debt.'' Would it not be better to tackle the debt stream running the highest interest rate?

I was referring to a situation where a person had a number of small personal loans. Because of the way the mathematics work, the interest rate matters little if the term is relatively short, which is why there is little to be gained by attacking the debt with the highest interest rate. Also, people who adopt this strategy find that paying off the first debt is extremely motivating and encourages them to keep up the process.

I am 64, self-employed and make the maximum tax-deductible contributions to a self-managed super fund to lower my tax each year. I operate out of a line-of-credit account with only a small working balance in cash. Am I able to use borrowed funds to make these tax-deductible contributions to super? A friend has told me this is not allowed. Also, could I claim the interest on the borrowings for the super contributions as a tax deduction?

You can certainly use borrowed funds to make deductible contributions to super but you cannot claim the interest on those borrowings as a tax deduction. The main reason for the decision is that superannuation funds in the accumulation stage do not pay any income.

My wife and I have investments of $500,000 and both receive an aged pension of $15,000 a year. My income is at least $63,000 and our joint income $76,000. We own our home and pay off our credit card each month. When I applied for a fee-free credit card, my application was rejected by one and then a second provider. I could provide evidence of the earnings outlined above but could not provide either an accountant's statement or tax statement. As I have not paid tax since the super is exempted as income, I could not provide the required statement. How could I provide a statement of income to the satisfaction of credit card providers?

The problem is you are being assessed by a computer - I suggest you cultivate a relationship with a senior bank officer and hope that they can exercise discretion and get you over the line. The alternative is to use a debit card, which you should be able to obtain easily. Take a letter from your accountant with you to confirm your income status.

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. Email: noelwhit@gmail.com.

The story Ask Noel first appeared on The Sydney Morning Herald.

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