Kiwi's in Australia: Superannuation question

[lissie]

Hi all, We are Kiwis, now living in Perth. My partner is just about to sign up for a 12 month contract. Australia seems to have a tax system in the dark ages and even as a contractor he needs to contribute 9% to superannuation.
His agent is keen to get him to do some salary sacrificing which is a tax lurk where if you are over 50 you can "salary sacrifice" up to $100k a year into super - only paying 15% tax. All capital and income is free of further tax if he leaves it until he's 60 - 5 years time.
The purpose of working here was basically to pay our living expenses and pay for further traveling. We have a property and share portfolio's in NZ which we believe sufficient to cover our retirement. Therefore initially I was anti putting anything in super - now the tax breaks make it appear unbelievably attractive.
The question is are we better to invest in Aussie super or pay off our flexiloan in NZ?
He is earning approx $100k pa but as will start work next week the current tax year (30 Jun) will be a lot less than that - we've been traveling until now so had no paid employment.
I am starting up an online business so don't expect to make much of a profit on anything this tax year.
We have flexiloan in NZ but do not HAVE to transfer cash to top it up.
Our flexiloan in NZ is currently 10.55%
Without any deductions, sacrifice etc
This tax year his tax rate on approx $50k income would be 19%
On a full tax year his tax rate on approx $100k income would be 29%
We have until June to decide whether to make the extra payments.

So are we better off paying the NZ loan off -which we could withdraw from again to travel, or tie the money up for 5 years.

I don't know how to predict exchange rates! - though with the rate as it is I am tempted to send money home to NZ.

I assume that NZ interest rates may begin to drop in the next year or 2.

We don't have a huge exposure to Australian investments and can see some benefit having money in Australia as we will probably continue to holiday over here into the future, so regardless of exchange rates we could always spend the A$ over here.

We do intend to return to NZ to live at some point in the next 10 years.

Sorry - this is a bit off topic for this forum but I figured we are a pretty mobile bunch and maybe some other Kiwi's had been in the same situation?

[Monid]

Its a good question, here in the UK we were forced to either buy into the Govt superannuation or our employers super plan, which we chose because it was more lucrative. Annoying because we are planning to take care of that sort of thing ourselves via property, still £3000 a year inflation adjusted won't go admiss in our old age, if we can remember it in 30 years time...

Anyway back to you, what is the return on the Aussie super? Is there some interest being paid or is it only the one off tax savings? If it is the one off tax savings, calculate how many years till you can pull it out again and how much you are spending on interest in the meantime...

So for $10000 suppose you save $1400 (%14) in taxes.
In interest on your flex you could have saved $1055 so after 5 years you will have forgone $5275 (Actually a little bit more since it compounds) for an initial saving of $1400. Roughly your super plan would need to pay around about 6.5% per annum in interest to break even with the money you would gain by just paying down the flex.

Cheers
David

[lissie]

Funds can be invested in normal unit trust type investments so you choose between shares,bonds,listed property etc. Given a 5 year time frame I would probably go balanced so for the last 5 years Ozzie superfunds have returned 8-10% - but its been an exceptional bullmarket - over the last 10 years the same have returned 6.3 - 8.6% which may be more realistic!
So its sounding pretty break even : so is NZ near the top of the interest rate cycle - if so it would be better to invest in super
Also there is the potential forex risk
And also that paying off a mortgage is lower risk than investing in shares
BUT we would be better diversified in the shares
Too hard !
Lis

[Don and Liz]

you could get your accountant to set up a self managed super fund and invest in direct property through the fund - justt buy houses through it.

This way you would eliminate the losses a super fund will suffer as the share market cools if it is the standard type of fund that most employers offer.

you will have higher entry costs as opposed to the standard super.

Your return would of course depend on the property.

[lissie]

you could get your accountant to set up a self managed super fund and invest in direct property through the fund - justt buy houses through it.

Do you happen to know whether you can invest off-shore using self-managed super? I guess using super would avoid the Ozzie CGT as well?
I am not too impressed with the Ozzie property scene with both CGT and sales tax - though of course we would get the first home owners grant to off set the sales tax on the 1st one (ROTFL we have 7 properties in NZ)

[Don and Liz]

not sure about foreign assets into oz super.

don't worry about CGT, if you live in it you don't pay it at all!!

[NESW]

Have a look at www.cbussuper.com.au my employer 9% superannuation goes into the core stratedgy fund which earned 17.6% last financial year.

I think it comes down to where you choose to invest it. We had ours for a number of years with advance asset management and withdrew because of the lousy rates they were then paying (as well as the fees).

Industry funds in Australia don't have the fees and also offer life insurance etc.

I am happy I made the change. Just be aware though that when returning to NZ is no reason to believe you can "cash" in the money unless it meets the unpreserved rules, it is governed by your age bracket and sliding retirement rules, and Kiwi's are deemed still as potential Aussie residents.

[Lissica]

Just a related question. I'm a NZ citizen and have been working here over the last 9months. Am I right in thinking we can't withdraw it when we go back to NZ unless we are a tax resident of another country other than NZ or Australia? I've accumulated well over AU$10,000 in super and there's better things I can think of doing with it than locking it away for another 35yrs (I'm 29!).

[NESW]

My understanding is Kiwi citizens, regardless of where they reside, cannot withdraw their preserved employer paid super' until the scaled retirement age, because they are able to become Aussie residents without drama.

However you can change to another approved plan at any time.

About 12 months ago, the ATO issued a warning to superannuation members to be on alert for Companies posing that they could get the superannuation monies released. By accounts, some people have lost the lot.

There is however a clause in the superannuation act that let's you draw down "some" of your super in severe cases of hardship, however you must apply for this and it goes elsewhere for determination.

I know of one case where this happened, he was a former work colleague of my Hubby's and had a gambling problem, which was long term and fully documented.
He had borrowed money to gamble from suppliers of concrete boots, was in fear of his life as he couldn't repay the debt, and dared not return home. At the time he also hadn't told his wife he had forged her signature and had enabled a bigger mortgage on their home.....

I don't know what became of him, but do know they made the payout and his wife threw him out of the home. Again.

Your plan should have details of what you can and cannot do, as well as the ATO website.

I suppose you could always contemplate citizenship of an "approved" country that doesn't have a residency agreement with Aussie

[Lissica]

Thanks for that reply. I'd already looked at the ATO site, but was hoping that someone would know of particular loopholes in getting it out. Like working in another country other than NZ/Aus and changing your tax residency status to that country. I guess if it goes by citizenship then that rules it out.

Anyone know if it can be transferred over to Kiwisaver?

I just can't imagine waiting that long just to get access to money you've worked for. It's not much now, but after a couple years it's over AU$30,000! Grrrr....

Cheers,

An impatient Gen Y'er!

[NESW]

I am watchng it to see if we can transfer to Kiwisaver at a later date, but at this stage I don't believe so, because Kiwisaver's rules are less severe. And let's face it, if the economy stays the same, you will get more bang for your buck simply because of the exchange rate factor. My income also meets the Govt's co-contribution rule and so I throw in extra which they do as well.... a freebie.

Basically the rules are designed to stop anyone from touching it until retirement age, and I have no doubt they will stop taxpayer funded pensions by then. There was talk about first home ownership being linked to superannuation, but I haven't heard anymore about that going forward.

The main thing is to keep active with your fund, I do ours by the internet and will shortly split our plans to achieve different investment portfolios.

http://www.ato.gov.au/individuals/pathway.asp?pc=001/002/064&mfp=001/002&mnu=1101#001_002_064

Is the starting point for others to read up on if they desire.