Use Home Equity to Gain Super Bonus - Newsletter 2004

Middle to low-income earners earning less than $27,500 (in assessable income and reportable fringe benefits) are entitled to a government co-contribution of $1,000 if they make a personal contribution of $1000 to a complying superannuation fund or retirement savings plan before June 30th, 2005.

Taxpayers earning income of between $27,501 and $40,000 will have the maximum phased out by 8 cents in the dollar

You will be eligible for the co-contribution if you:

• have received employer superannuation support during the year of income or were entitled to such support (self-employed persons are not eligible);
• made personal contributions to obtain a superannuation benefit for yourself to a complying superannuation fund or Retirement Savings Plan on or after July 1st, 2003;
• lodge an income tax return; and
• you are a permanent resident and less than 71 years old at the end of the financial year the contribution is made.

Where one partner earns more than the upper threshold, then consider making a superannuation contribution on behalf of the lower income earner.

It’s effectively a chance to double your money, while also saving for retirement. Superannuation is a vital component of any financial planning, so the government offer can be seen as providing a bonus contribution to your super. Your $1,000 rapidly becomes $2,000 under this scheme - and will compound thereafter with the investments of the superannuation fund manager.

Some individuals without cash on hand have looked at using personal loans to take advantage of the offer. That makes sense if there’s no alternative - and we can help with a personal loan.

However, a cheaper alternative will usually involve using any spare equity in your home. Loans with redraw facilities can be utilised at times like this to fund valid investment strategies. Or a refinance may be necessary to unlock the equity. It depends on the circumstances.

Another $1,000 on the mortgage will cost around $70 in additional interest payments next year - against a return on the super contribution of $1,000.

It’s a reason why it also makes sense for borrowers to review their loans at the end of each financial year, or at least every couple of years, to assess their suitability and consider if there are better options. The market has never been more dynamic and lender margins continue to fall.

And if an annual or bi-annual check-up shows your current loan is fine, then nothing has been lost. But if a more suitable loan is available, the option is there to take it up. (Contact us at Peach if you would like a free mortgage check-up at any time.)

Please remember that we are not financial advisers and the comments I have made are general. Even if we were financial advisors, our tax and superannuation regime is so complex (our Income Tax Act runs to over 7,000 - seriously!) you should always have your plans checked by a qualified advisor who is aware of your specific situation.

You should check with your accountant to ensure that you are eligible and that your contribution is in a form that attracts the Government incentive. Or you can check things with our accountant who is happy to provide you with a brief telephone consultation for free! When getting financial advice, we suggest you get it from someone who is not receiving commissions for selling you specific financial products.

Until next time,


AKA Nicholas Gruen