New financial year is a good time to take stock of where you're at and plan for the future

However, I take solace in the knowledge that historically the Australian stock market has four bad years in every 10, and has never failed to recover strongly after a major downturn. I feel a bit like the farmer going through a drought - I know the rain will come - I just don't know when.

There is no doubt we are living in unusual times, but I have long believed that if you take charge of the things you can control, you should be well-placed to handle the things you can't.

Inflation and rising interest-rates are the dominant factors and the Reserve Bank has made it abundantly clear that rates are on the rise - probably in regular increments of 50 basis points.

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Obviously, it is far better to prepare for a rate rise in advance than to find yourself in a financial bind when it happens. Therefore make an effort to maintain home loan repayments of at least $8 a thousand a month - that's $3,200 a month on a $400,000 loan. Repayments at this rate will have your loan out of the way in 15 years if interest rates are 5 per cent.

If they don't go this high your loan will be paid off much faster and you will have given yourself a valuable safety buffer.

If you are over 55 pouring as much money as you can into superannuation. Yes, you need to keep cash on hand for emergencies, but there is no point in leaving money in bank accounts where the interest is fully taxable, when you can move it to superannuation where the income will be taxed at just 15 per cent.

I've been receiving scores of emails asking whether it's wise to keep making contributions when the market is down. It's the perfect time - it lets you get the assets at sale prices.

Remember too, a major benefit of placing money in super is that Centrelink does not count it until you reach pensionable age. For example, if the male partner was 67 and the female partner was 59, moving a large amount of superannuation from his name into her name could maximise his age pension benefits.

Major changes to superannuation came into force on 1 July. One of the most significant is the ability to contribute non-concessional contributions to superannuation to age 75 without passing the work test. This enables older retirees to take money out of the bank and put it into superannuation where the returns should be much better. Of course, you still need to keep at least 3 to 4 years expenditure in cash to give the market time to recover.

You can now make tax-deductible contributions between 67 and 75 provided you can pass the work test. I have written extensively about the benefits of using catch-up contributions to reduce or eliminate capital gains tax. Make sure you are right across them so you can use them to your benefit if appropriate.

Most of my articles have been built around one common theme: helping yourself so that you can have a more secure financial future. It is the actions you take today that will make the difference in the long term.

Question

I'm in my seventies, in frail health, and have been advised to close down my super fund worth close to a million dollars in order to avoid a 17 per cent "death tax" on the taxable proportion of my super balance. I don't understand why this tax is payable and why I have a taxable proportion. I understood super in retirement was entirely tax free.

Answer

Once a person reaches 60 all withdrawals from their super are tax-free, and provided their entire superannuation fund is in pension mode, as yours is, there is no tax on the earnings of that fund either.

The taxable component of your super derives from tax-deductible contributions plus earnings on all contributions made before you started the pension. The non-taxable component comes from any non-concessional (post-tax) contributions that were made (if any).

The rationale for the death tax is that concessional contributions are taxed at just 15 per cent when received by your fund. The lower tax rate is an incentive to contribute to superannuation to reduce your reliance on the age pension.

However, that money is for the benefit of the contributor or their "tax" dependents such as their spouse but not for other people. This is why money left to a non-dependent suffers a 17 per cent tax made up of an effective clawback of this 15 per cent contribution tax plus 2 per cent Medicare levy.

As you say it can be simply avoided by withdrawing the entire balance before you die.

Question

I hope you can solve a family question regarding a home left to four siblings. It was acquired in 1970 with our parents as joint owners. Dad died in 1994 and Mum died in 1995.

We have just the been paid out $95,000 being one quarter share of the property.

The other three siblings still want to keep it. It has never been rented out and only ever been used by family members on public holidays and the odd weekend etc.

Because it has never been used as an income and has only been a cost to us siblings......is there any tax to be paid on our one quarter share.

Answer

The property was originally a pre-CGT asset which means that your dad's share would have passed to your mother at its valuation on the date of his death. The property would have passed to you and your siblings at its valuation at the date of your father's death, plus its valuation at the date of her death.

There will be capital gains tax to pay but because the beneficiaries get the benefit of the 50 per cent discount, and you paying tax on only one quarter the gain it may not be too excessive.

The good news is that because the property was acquired by you after August 1991, and has never been income producing, all money spent on that property including rates, and land tax can be added to the base cost. This means your taxable capital gain should be substantially reduced.

Question

We are a married couple receiving the full pension, with total assets of $30,000. Interest Income from savings is under $100. I have taken a job where I earn $60 a week and supply an invoice to my employer with no tax taken out. Do I need to file a tax return?

Answer

As you are issuing invoices and earning business income you have to lodge a tax return. The amount you earn is not relevant.

Question

I have a share portfolio of $1,500,000 of which my three children will inherit in equal share. My daughter is the executor of my will. What is the best advice for my daughter (that I can give her) in regards to the distribution of these shares? And in relation to the capital gains tax, what action would be the most appropriated?

Answer

Keep in mind that death does not trigger capital gains tax. It merely transfers the liability to the beneficiaries, who will pay capital gains tax based on your original cost if and when they decide to dispose of any of the shares.

It may be that one or more children may like to dispose of the shares, and another may like to keep them. This is why it is important to be transparent with your family and discuss their attitude to shares, and what they might like to do with the shares on your demise.

It's then a matter of taking advice from your solicitor and your accountant to determine all shares should be left to certain beneficiaries , and whether any should be sold by the estate.

If your intention is to leave your children an equal share of net assets then the CGT liability needs to be considered.

For example, shares purchased before September 20, 1985 would start with a cost base of market value at the date you died whereas shares purchased after 1985 would have a cost base of the cost to you.

This could make a considerable difference in the tax paid and the net inheritance.