OPINION

Noel's awards for the best and the worst in the money world during 2021

And the awards for the best and worst in the financial world of 2021 go to...
And the awards for the best and worst in the financial world of 2021 go to...

As we count down to Christmas, it's time to have some fun and recognise those who have made unique contributions to the world of money in 2021.

Let's start with bitcoin. I gave it the Golden Tulip Award in 2017 for the fastest growing "asset class" when it rose 1671 per cent in just one year.

Then in 2018 it scored the Shrinking TulipAward when it plunged from $US19,650 to just US$3225.

Today I'm giving it the Phoenix Award because it rose 194.2 per cent for the year to $US56,980.

This does include a fall of 9.8 per cent in the last month. As I've often said: "you pay your money and you take your chances".

The Ebenezer ScroogeAward for the most heartless assault on the vulnerable in our society goes to Beforepay - an organisation which allows you "get access to your wages instantly. It's quick and easy to use and there's no hidden fees".

I first heard about them on the ABC television program Gruen.

It showed one of their advertisements, showing how a person with little food in the fridge could replenish their supplies very quickly by putting it on Beforepay.

Another ad showed a couple dining out in an expensive restaurant with the guy opting for something cheap because he was broke; Beforepay showed him how to order lobster immediately to impress his date.

Their website says, "there's no interest or hidden fees. Just a 5 per cent fixed transaction fee and flexible repayments with instalments across up to four pay cycles."

I reckon that's an interest rate of around 36 per cent. Old Scrooge would be jealous.

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The Shih Tzu Trophy for the most hackneyed excuse of the year goes to con woman Melissa Caddick, who bought herself a diamond ring with the $1.15 million her parents had given her to buy them a house.

One investor handed Caddick a cheque for $450,000 made out to ComSec but, to cover up the fact she had lied about having a ComSec account, Caddick said somehow her dog had got hold of the cheque and eaten it.

Caddick, along with a big chunk of the investors' money, disappeared in November 2020 after a raid on her home. Ruff justice!

The Karma Award goes to Tony Iervasi and Athan Papoulias, the guys behind the Courtenay House group of Bondi, who were offering returns better than 10 per cent per month thanks to their skills in "trading in futures".

I reported the company to ASIC for investigation, and eventually ASIC issued orders preventing Courtenay and its affiliates from carrying on a financial services business.

Nearly 800 investors put money into the Courtenay House scheme, including the then Mayor of Sydney's Sutherland Shire, who invested a staggering $975,000.

Many invested on little more due diligence than "a mate recommended them" or they "heard someone was getting good returns" and didn't want to miss out.

At long last the pair have been charged by ASIC with a range of criminal offences, including operating a Ponzi scheme.

And finally, for the sixth year running, the Red Kelpie Award (for long-term, loyal and meritorious conduct) goes to ... the Australian Stock Market.

The kelpie normally gives us an exciting year but despite all the gloomy headlines it was steady-as-she-goes and upwards all the way.

The index stood at 6851 on 1 January and at 7300 on the date of writing.

That's a total return for the year of 15 per cent, made up of 11 per cent capital growth and 4 per cent income.

Okay, it hasn't given us the excitement of bitcoin, but I'd rather have my long-term future in the index.

Most people don't know that it has been the best performing index in the world over the last 120 years. That's one hell of a track record.

Noel answers your money questions

Question

As a couple our total income for the year including franking credits will be $93,500. If we do not include franking credits, total income will be $87000. Are we still eligible for the CSHC?

Answer

The income test for the CHSC is based on adjusted taxable income which would include franking credits. The cut-off point is $92,416 so you are only $1084 over the limit. I reckon a tax-deductible contribution to a charity is all that is needed to reduce your taxable income below the threshold.

Question

Recently you mentioned a scenario where $100,000 invested today could be worth $109,000 in a year, and $130,000 after three years. How much I would pay in tax as a $100,000 a year PAYG earner if I adopted the strategy.

Answer

Let's assume the investment is in a managed fund which matches the All Ordinaries index, and achieves 5 per cent per annum growth, and 4 per cent per annum income which is fully franked. Obviously, such a fund will not produce 9 per cent every year because some years will be better and some will be worse.

However the long-term average has been 9 per cent per annum so for this discussion we'll use that number. At the end of the first year the fund would have earned $5000 in growth and $4000 in franked dividends.

There is no tax on the growth because no capital gains tax is payable until disposal which would be many years down the track if you follow my recommendation of leaving your money grow to enjoy the benefit of compounding.

The franked dividend of $4000 would carry franking credits of $1700 which means $5700 will be added to your taxable income in that first year. As you are in the 34.5 per cent tax bracket including Medicare the tax on that would be $1966.

The franking credits could be used to reduce that tax which means your net tax on the dividends would be $266. In year three the growth should be approximately $6000 and the income approximately $4700. Franking credits of $2000 should wipe out most of the tax on that income. The combination of capital gains not being taxed until disposal, and dividends which enjoy franking, enable you to build wealth in a highly tax effective manner.

Question

The partner of my older sister died in 2016. He had made her transfer half of her house into his name in 2015. On his death he willed half of the house and other substantial assets to his daughter. My sister, in her ignorance gifted some of her assets to her two nieces as she had no children of her own.

This left her with half a house and no income so she went to litigation and was awarded her house but still no income . She was told by her lawyers to apply for the pension. Due to her gifting the application was rejected. What is the time frame for her to re-apply - she has struggled financially for nearly six years.

Answer

She should seek to apply for the Age Pension in line with the expiry of the five year deprivation period, as the amount counted under deprivation will no longer be counted. Any age pension entitlement will then depend on her current position (homeowner or non-homeowner, income and assets).

Question

Recently we received shares as beneficiaries of my mother's estate. We have two separate accountants giving us different advice on the CGT implications.

All the shares were purchased after 1985. One accountant says our cost base for CGT is the price the shares were trading at when transferred to us. The other says it is the price paid originally by Mum. Can you help?

Answer

The legislation is clear - death does not trigger CGT, it passes the liability of the deceased to the beneficiaries. The cost base and date of acquisition is when your Mum acquired the shares. Keep in mind that you will not pay any CGT until you dispose of them. Tell your accountants that the relevant ATO reference is. 128-15 ITAA 1997.

Question

My inquiry is in relation to non-concessional contributions, I am aged 70 and retired.

I have come into an inheritance and after paying capital gains tax will receive around $300,000. I have been told to be eligible to contribute this money to my super I must have had 40 hours of paid employment from 1 July 2021. Currently I have around $ 400,000 in my super.

Can you confirm if this is correct?

Answer

As you are over 67 you would need to pass the work test to make any contributions. But there is a glimmer of hope - legislation is in the pipe line to enable people up to age 75 to make non-concessional contributions from July 1, 2022 provided their super balance is under $1.7 million. Watch this space.

  • Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. Email noel@noelwhittaker.com.au