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Doing the sums for an eco-friendly, electric-vehicle future

EVs right now have three major problems: they are very expensive; they have a relatively short range; and Australia is short of high-speed charging stations.
EVs right now have three major problems: they are very expensive; they have a relatively short range; and Australia is short of high-speed charging stations.

The COP26 summit in Glasgow certainly produced consensus in one area: polluting internal combustion engine (ICE) vehicles should be replaced as quickly as possible with environmentally friendly electric vehicles (EVs).

I have no problem with this - my Tesla has already given me over two years of cheap, trouble-free motoring. And Prime Minister Scott Morrison has just announced a policy to partner with industry to fund 50,000 EV charging stations in Australian households, as part of his "Future Fuels" strategy.

Unfortunately, while EVs will reduce emissions in the long term, in the short term they will increase them, because manufacturing their batteries uses a lot of energy. A mid-sized EV with a range of just 135 km produces about 15 per cent more emissions than an equivalent ICE; a large EV with a 400 km range produces around 68 per cent more.

The next problem is generating the electricity to power EVs on our roads in the next few years. EVs are only zero emission if they are made and powered with electricity from renewables, but that's a long way off. In the meantime, coal-fired stations will continue to do the heavy lifting. At least EVs are more efficient than ICE vehicles.

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That's the big picture; now let's drill down a bit. EVs right now have three major problems: they are very expensive; they have a relatively short range; and Australia is short of high-speed charging stations. Expense is likely to continue to be a problem, as Morrison's enthusiasm for EVs stops short of offering any financial incentives for making the switch, or setting targets to increase EV sales or decrease ICE sales.

Range and shortage of high-speed charging stations are related issues. For city drivers sticking with short trips they are not a problem.

You can charge your car from a normal power outlet in your home, at about one hour of charging for each 10 kilometres added to the battery. So you can come home at night, plug the car in, and expect to have 120 kilometres or more to use next day. This is more than adequate for most people.

The problems come when you want to make longer trips. Currently, there are about 3000 public charging points in Australia. Future Fuels will add another 1400 fast public chargers, many in rural areas, in collaboration with private companies.

Not all EV chargers are equal. The one I have in my garage at home, which cost about $1500 and requires three-phase power, has a charge rate of around 100 kilometres an hour.

Public charging stations vary - the best I have encountered will charge at about 200 kilometres an hour: if your vehicle has a top range of 400 kilometres, that's a wait of at least two hours to continue your trip. And that assumes you can find a fast charger on your preferred route, and there are spaces available for you to use right away.

An issue that appears to have been overlooked is how EV charging points will be supplied to people living in apartment complexes.

Chargers would have to be in the building's car park; will special meters need to be installed to record the extra power use? And when EVs are the norm, will the entire building's electricity supply have to be upgraded to cope with the EV charging needs of its residents? If so, who will pay the cost? Imagine the headaches for residents of an older building with hundreds of apartments.

There is a huge potential effect on apartment valuations. Almost certainly, apartment buyers will be looking for EV facilities already in the building - if the building has no such facilities now, will sellers find themselves forced to discount the price in expectation of future costs to bring the building up to speed? Worse still, what if the building is not able to be converted to cater for electric vehicles?

With Morrison now enamoured of the EV concept, perhaps those 50,000 household charging stations will support developers to solve these problems for new builds, and body corporates to provide charging stations in existing apartment complexes.

Noel answers your money questions

Question

I am 58 and would like to retire. My super is around $450,000, but my mortgage is $290,000. Can I access my super to reduce my mortgage and then down the track re-enter the workforce on a casual basis?

Answer

You have reached your preservation age, so you can formally retire and access your super. Just keep in mind that only the first $225,000 of the taxable component is tax free.

However, it is quite possible that you have a non-taxable component in your super as well. Your adviser would be able to check this for you.

Retirement is a state of mind and you could return to the workforce in due course and do any sort of work that you choose. I do think the big issue is whether you should be withdrawing money from super - a good super fund should be returning at least 8 per cent per annum, and your mortgage rate should be no more than 3 per cent.

If you are having trouble with your repayments, a better option may be to simply withdraw money from super to make up any shortfall in the repayments you are having.

Question

From time to time you have referred to "on paper deductions like depreciation, which can make a property cash-flow neutral". Could you please elaborate?

Answer

When you are doing the tax return for an investment property there will be items such as rates, land tax, and insurance which are tax-deductible to you.

These are paid out of your own pocket. Building depreciation allows a tax deduction for wear and tear on property, but because this is a paper entry it requires no expenditure of cash on your behalf. It's just a bonus you get when you are doing your tax return. The downside is that building depreciation reduces the cost base for capital gains tax purposes.

Question

I am on a disability pension and will turn 65 next month. Acting on the (expensive) financial advice provided by HESTA I withdrew $330,000 from my superfund to help with the purchase of a new residence. When I settle on the new house, Centrelink have told me I need to submit details of my existing house so they can assess it as an asset.

I phoned the tax office - and was told that in order to make a downsizing contribution after selling my existing property it needed to be my primary residence at the point of sale. If I tell Centrelink the new property is unoccupied, and maintain my existing property as my primary residence until it is sold, will I be able to make the downsizing contribution?

This strategy of buying, selling, and moving money out of and into the superfund was described as being a straight forward, not-at-all risky procedure. I feel I am walking in a minefield with nowhere to look for support.

Answer

John Perri of AMP says it is incorrect that the property being sold has to be the primary residence at the point of sale.

All that is required is that the property meets the key eligibility conditions, which include that it has been a main residence for some of the time owned (sufficient to qualify for some capital gains tax exemption as it was a main residence for some or all of the time), and that you have owned it for at least 10 years.

This assumes the current home will be sold after you turn 65 as this is the earliest age that a downsizing contribution can be made. If this is the case, then a downsizer contribution can be made.

From a Centrelink perspective you can only get the exemption for one main residence, which is generally the one you will be residing in.

If you continue to live in the existing property until it is sold, that property will be your main residence and Centrelink will treat the new property as an "investment property", and hence as an asset. Once you sell the existing property, the new property will be classed as your main residence., Upon the sale of the existing property you can use some of the proceeds to make the downsizer contribution.

Question

Recently you wrote about the timing of claiming a tax deduction for personal contributions to super. Can you tell me if there is a maximum amount allowable in a person's super before the deduction is denied? I have made a personal contribution, to take me up to my $25,000 cap for 2020/21, but have in excess of $500,000 in accumulation mode.

Answer

The balance of your superannuation fund is irrelevant if you are making a concessional contribution - they are subject to the normal limits. These are $27,500 in this financial year and this figure includes the employer contribution.

If you are thinking about making catch up super contributions the balance of your superannuation fund at the previous 30 June should be less than $500,000. Non-concessional contributions are a different matter - they are not allowed if your superannuation balance is more than $1.7 million.

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

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This story Doing the sums for an eco-friendly, electric-vehicle future first appeared on The Canberra Times.