Hello
My wife inherited a flat from her aunty recently and we have just managed to sell it. After the mortgage is paid off and legal costs, the amount will be around 120k. The capital gain on the flat is around $100k or so. Its not a huge amount of money, but we are on the family benefits and I was wondering what advice you guys might give regarding what to do with the money to best invest it for best return. We own our house so I would have put it straight on the home loan. I was thinking of putting it into one of the high net banking accounts, or perhaps a term deposit? but I am not sure. I asked my accountant but he was less than useless unfortunately. I am not sure if the windfall will effect our family benefits payments or not.
Any advice is hugely appreciated,
regards
JustinHi
FTB is based on earnings including investment earnings – Part A on joint earnings – Part B on lowest earner level of assessable income. Things like which name to invest in etc are issues to consider.
Interest on $100K would be about $8500 (8 1/2%) if you find the right term deposit.
Of course there are many options to change the way the income is taken into account depending on your family situation etc.
If you have paid off your house and have $100K there are some great opportunities for you to leap frog into serious sustainable wealth creation. Do you have children – A family trust might be an opportunity. Are you closer to retirement – super might be an option.
If you want to shoot me an email with a bit more info and I can expand.
You have a great opportunity hear be careful want you do with it.
Just checking – how long was it between inheriting and selling? There might be capital gains tax issues – your cost base is the value at time of inheritance. Need to take this into account.
Hi Justin,
You mentioned you have a home loan. If your home loan has an offset account linked to it, i would advise to put the whole lot into that offset account (as opposed to putting it into a term deposit).
The tax benefits are two-fold:1. The interest income you earn (or save from paying on the linked home loan) is equal to the home loan rate……say its 9%. The beauty is that the 9% return on investment is tax free. There is no taxpayable on the interest you "save" on your home loan.
Suppose you put the $120k in a term deposit earning say 8% p.a. That would equate to income of $9,600 before tax per annum. Not sure what your taxable income is like but I'm gonna assume you have a marginal tax rate of 30% (Taxable income in the range of $34 to $80k income p.a). At 30% marginal rate, the tax payable on the $9,600 earnt will be $2,880 leaving with an AFTER tax return of just $6,720 ($9600 – $2880)
Now if you leave it in an offset account (and assuming your mortgage rate is 9%), the $120k will earn you $10,800 over 12 months (or technically paying $10,800 less interest in your home loan). Whatsmore, the $10,800 is not subject to income tax so the return AFTER tax is also $10,800.
Because the offset account is like a personal bank account, you can redraw it out anytime you like (for other purchases such as a deposit for an IP later down the track).
You will also not impact your eligibility to the Family tax benefits because you did not earn any "taxable" income from the $120k if u put it in the offset account.
So if you don't currently have an offset linked to your home loan, I would seriously consider refinancing to another product that does have an offset facility. The rate might be alittle higher than your current loan but having an offset account is an excellent wealth generation tool that earns you high, predictable AND tax free return on investment.
This is another example of why the loan product with the lowest rate may not necessarily the best loan for the borrowers circumstances.
Hope the above was of help to you.
Cheers
Kevin
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