‘Red flags all over’: Beware advice from ‘free’ financial planners

I am 55, single, and with no investment experience. My superannuation is invested with a large industry fund and the performance has been very good. I won a financial consultation with a “financial adviser” in a “lottery”. The adviser recommended I start a self-managed super fund (SMSF) and transfer my existing super to it. When I asked what was the rationale for the recommendation, he told me that I could get better returns through my own fund – if I followed his recommendations. I’m now confused.

This situation has red flags all over it. For starters, good advisers are in short supply, and they certainly aren’t trying to win new clients by offering lotteries.

Credit:Simon Letch

Furthermore, any advice to transfer a well-performing super fund to a SMSF should be treated with suspicion.

SMSFs are great in the right situation, but are best suited to high-net -worth individuals who have a strong track record in handling both listed and unlisted investments. My opinion is you should keep your retirement savings where they are.

We want to invest some money in exchange-traded funds (ETFs) for the long term. I am a secondary teacher but, for the past 2.5 years I have been working in the UK. When I try to sign up to Vanguard to buy their Australian shares index, it stipulates that I must be an Australian resident for tax purposes, which I’m not. How can I access the Australian sharemarket to ensure my savings are being used effectively?

My broker tells me that if someone goes directly to the Vanguard platform, they will say that to be eligible you need to be an Australian tax resident. However, there is nothing to stop you from opening an account with a broker and buying the ETFs on the open sharemarket – even if you are not an Australian tax resident.

Our daughter wants to buy an investment property and let us live there for a nominal or little rent, while still managing the mortgage without rental income. Would this be possible, and can she claim the expenses and interest as a tax deduction?

For the expenses associated with the property to be tax-deductible, it will need to be rented at a fair market rent. This need not be high market rent, but it must be something that a reasonable person would regard as appropriate.

The problem with this strategy is that you would be paying rent with after-tax dollars which will be received by your daughter as taxable income.

It may be a better strategy if she buys a property based on its potential, and borrows a large portion of the purchase price to maximise the tax deductions she is looking for.

You could then rent a property that suits your requirements, and she could help with the rent if you become financially stretched.

I have a friend who owns a property in Canberra which she rents most of the time, and uses the proceeds to pay for accommodation she rents in Sydney. Every two years she returns to Canberra and lives in the property for at least three months. She says that this is to ensure that it continues to be classed as her principal place of residence for tax purposes. In three years’ time, she will be old enough to qualify for the age pension. If she continues with her current living arrangements, how would the accommodation she owns in Canberra be treated for pension assets test purposes? Would the rent she receives be treated as income, and can it be offset by the rent she pays to live in Sydney?

Your home is an exempt asset – provided you live in it. In this case, it would appear that it would not fit that criteria, which means that the Canberra property would be assessed for the assets test, and the net income from the property rent would be assessed under the income test.

She cannot offset rental income from her Canberra property against a private expense, such as rent.

  • Advice given in this article is general in nature and is 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.

Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. Email: [email protected]

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