Inherited Shares, Mortgages, and Super

For many Australians approaching or in retirement, navigating decisions involving inherited shares, mortgage repayments, or superannuation contributions can feel overwhelming. While there is no one-size-fits-all solution, being informed can help you make decisions that support your personal financial goals and obligations.

This article outlines general considerations across four key areas. It is general in nature and does not constitute personal advice. For tailored guidance, you should consult a qualified financial adviser.

Inherited Shares: Consolidate or Hold?

Many retirees inherit small parcels of shares—commonly in companies like Telstra or AMP—often acquired through legacy privatisation offers. These holdings may carry sentimental value, but they can introduce unnecessary complexity and risk.

Key considerations:

• Diversification: Holding a small number of individual shares can expose you to market volatility. Diversified exposure—such as via managed funds or ETFs—can help reduce this risk.

• Administrative complexity: Shares held via SRNs (Security Reference Numbers) are managed individually. Using a HIN (Holder Identification Number) through a broker can simplify portfolio management and tax reporting.

If the value is modest (e.g. under $10,000), and you’re not emotionally attached, selling and reinvesting into a diversified portfolio may simplify your affairs. However, if making a transaction, it’s important to consider capital gains tax implications and the need to ensure the product is appropriate for your situation.

Note: If you are not receiving personal advice and request a share sale through your adviser, ensure the transaction meets Execution Only requirements and the appropriate documentation is completed, including the Licensee's Execution Only Acknowledgement and Authority form.

Extra Cash: Pay Off the Mortgage or Contribute to Super?

If you have surplus cash flow, deciding between extra mortgage repayments and contributing to super can be complex. Both approaches have merit, and the better option will depend on your personal goals, age, eligibility, and tax position.

Paying off the mortgage offers:

• A guaranteed after-tax return (equivalent to your home loan interest rate).

• Reduced debt and improved cash flow flexibility.

Contributing to super offers:

• Concessional tax treatment (super fund earnings are taxed at 15%, and often 0% in retirement phase).

• Potential to make non-concessional or concessional contributions depending on age, work status, and contribution caps.

• Longer-term wealth accumulation within a tax-effective structure.

Some individuals choose to maintain an emergency buffer in an offset account, then split extra funds between debt reduction and superannuation depending on their comfort with risk, income needs, and retirement timing.

Important: Super contributions are subject to age and work test rules, as well as contribution caps. Exceeding these may result in tax penalties. Seek advice before making significant contributions.

Downsizer Contributions: Super from Home Proceeds

If you’re 55 or older and planning to downsize your home, you may be eligible to contribute up to $300,000 per person (or $600,000 per couple) into super via the downsizer contribution rules.

Eligibility criteria include:

• You must be 55 or older at the time of the contribution.

• The home must have been owned for at least 10 years and used as your main residence during that period.

• Sale proceeds must be fully or partially exempt from capital gains tax under the main residence exemption.

Why consider it?

• Downsizer contributions are not counted towards the non-concessional contribution cap, allowing significant additional savings into super without triggering excess contributions.

• Can improve Centrelink positioning when structured appropriately.

Note: Not all homes qualify, and downsizer contributions are irreversible. Carefully consider whether super is an appropriate vehicle for the proceeds, based on your personal needs, access requirements, and estate planning considerations. It’s also essential to confirm eligibility before making the contribution.

Investment Property vs Super: Which Best Supports Retirement?

Clients nearing or in retirement often weigh whether to retain a rental property or sell it and contribute the proceeds to super.

Retaining the property:

• May offer long-term capital growth and rental income.

• Involves ongoing costs (repairs, rates, agent fees) and is illiquid.

• Property values and yields fluctuate and depend on market conditions.

Selling and contributing to super:

• Provides access to a diversified and liquid investment portfolio.

• Enables a structured income stream in retirement.

• May offer improved tax efficiency (e.g., earnings taxed at 0% in retirement phase).

Other considerations:

• If gearing is involved (e.g. using equity to invest), ensure the strategy aligns with your risk profile, cash flow, and investment time horizon. Gearing is generally only suitable for clients with high risk tolerance, strong cash flow, and a long investment horizon.

• If contributing property sale proceeds to super, ensure any advice regarding super rollovers or investment allocation is provided in line with best interest duty requirements.

Note: Real estate is illiquid and may pose concentration risks. In contrast, superannuation provides access to a broader range of investment options and structured income planning.

Final Thoughts

Whether you’re dealing with inherited assets, considering debt reduction, contemplating downsizing, or comparing super to property, your decisions should be assessed in the context of your overall financial plan. Key elements to consider include:

• Your risk tolerance and capacity for loss.

• Access to funds (liquidity).

• Tax implications.

• Contribution eligibility and caps.

• Estate planning and Centrelink considerations.

Tip: Always ensure you receive a current Financial Services Guide (FSG) and any relevant Product Disclosure Statements (PDS) before acting on a financial product. For new or complex decisions, ensure advice is documented in an appropriate advice document—either a Statement of Advice or Record of Advice—depending on your circumstances.

Disclaimer: This article provides general information only and does not take into account your personal objectives, financial situation, or needs. It is not financial advice. You should consider seeking personal advice from a licensed financial adviser before acting on any information contained herein.