I earn $2200 a fortnight net and my wife $1289 a fortnight net, though this could cease. Both of us will be 65 by December 2008. Our home, valued at about $650,000 has a mortgage of $256,000. We have our own superannuation fund. We also have a share portfolio of $100,000 which we are in the process of converting into cash in order to pay some of the mortgage off when we are both 65 and can access the super. I plan to work for another five years to build the super up again. Our advice had been to begin the transition-to-retirement pension by salary sacrificing $50,000 a year. Are we eligible to do this from July this year and is it still viable? C.H.

You could have started a transition-to-retirement pension last financial year and can certainly start it this year. With the threshold of the 15percent tax bracket at $34,000, there is no tax benefit in reducing your taxable income any lower through salary sacrifice. If in fact you only have $100,000 in super, then the maximum you can withdraw as a TTR pension is 10percent or $10,000. But your basic strategy is good. Minimise your tax, maximise the repayments into super and thus minimise the money lost on interest payments, and keep working and saving for as long as possible. Another view is that if this stockmarket goes sufficiently low, the rebound is likely to be sharp and profitable, in which case you will gain more by investing in shares rather than your mortgage.

Overdoing salary sacrifice

I am a 62-year-old NSW public servant. I draw down 10percent from my super on a transition-to-retirement pension. I have 7000 shares in Westpac that pays fully franked dividends yearly (reinvested). I pay $200 a year to a medical fund, $600 to a union, $1200 in income protection insurance, $50 to charities and $150 dry cleaning expenses. Because I don't need any extra finance, I sacrifice my entire salary to super. If I don't pay any tax in the year do I need to put in a tax return? Or, because of the above rebates should I draw a wage to get the rebates plus the $750 paid to low-income earners? To qualify, how much should I earn to get the maximum? S.M.

If you are not earning any taxable income then you are generally not required to put in a tax return. If you are not eligible for the Senior Australians Tax Offset, nor receive an Australian Government benefit, you must lodge a tax return only if your taxable income exceeds $6000, or $1666 if you were under 18 as at June 30, 2008 and your income was not work-related. If you are not required to lodge a tax return for the 2007-08 financial year, you may still need to fill in a Non-Lodgement Advice by October 31, 2008. You certainly need to lodge a return if you had a reportable fringe benefit as part of your employment package, or if you were entitled to the private health insurance tax offset or if you made a loss in an investment, such as a share trade. In your case, I estimate your taxable income from dividends is about $13,000 (including the dividend gross-up) but if this is your only income, you may be able to claim a refund of this franking credit without lodging a tax return. Check the ATO website at http://www.ato.gov.au. You cannot then claim a refund for unused low income earners rebate, which rises to $1200 this tax year and $1350 next.

More importantly, you are paying more tax than you need to by salary sacrificing your entire salary. Don't forget that every dollar you salary sacrifice is taxed at 15percent and the balance ends up in the taxable component of your super benefit.

Instead, salary income is untaxed on the first $6000 while the next $28,000 is taxed at 15percent, reduced by deductions for income protection insurance, contributions to charity, and possibly dry cleaning, depending on your job, while you may be able to claim a rebate for health insurance. For 2008-09, try to reduce your salary sacrifice so that your total assessable income, after deductions, comes to $34,000. If you then have more income than you need, you can contribute it as a non-concessional contribution which is untaxed on entry into the super fund and is then included in the tax-free component.