Super countdown: Nerida Cole

Top up your retirement savings by transferring assets into super and managing capital gains

Even after the new rules come into play from July 1, 2017, super still remains a very effective tax structure. But if getting more into super means selling assets, such as shares or an investment property, you need a plan to manage the capital gains tax (CGT) or you could end up paying thousands of dollars more in tax than you need to. Here are two ideas to look at before June 30, 2017, that could save you enough tax to fund a first-class return ticket to Europe. STRATEGY 1

Save up to $11,900 in CGT

For investors 50 years or older, up to $35,000 can be contributed to super and allocated as a concessional tax-deductible contribution. Although the super fund will pay 15% tax on this contribution, the resulting tax deduction may allow an overall tax saving of up to $11,900 for investors on the top marginal rate. For investors paying 39% tax (including Medicare), the overall tax savings available are up to $8400. Because taxable capital gains are added to other income, be mindful you may end up in a higher tax bracket than normal.

This concessional contribution could be funded from the sale of the property or shares, and can be made in combination with a non-concessional contribution to further maximise the amount moved into super. Rather than having to sell shares and contribute cash from the proceeds, members of self-managed super funds (SMSFs) also have the option of using “in-specie” contributions to transfer shares directly into the fund. CGT still applies but this allows the portfolio to be retained.

The 2016-17 contribution level is rest ricted to $30,000 if you are 49 or younger. Regardless of age, there are a number of additional conditions to meet. Self-funded retirees or the self-employed cannot have more than 10% of income from employment, whereas employees will need to structure their concessional contributions via salary sacrifice. Very high income earners may have additional tax payable on super contributions.

STRATEGY 2 Save up to $20,400 with contribution reserve

For investors with significant capital gains, this complex strategy can be worth the effort. It allows up to $60,000 in deductions to help offset the additional income created from the capital gains event.

In a nutshell, the investor is able to magnify strategy 1 by making an additional $25,000 concessional contribution relating to 2017-18 just before June 30, 2017, and claiming a tax deduction for both contributions in this current financial year. Again, the super fund will pay contributions tax but the overall saving could be as much as $20,400 (for the 49% tax bracket).

In addition to the conditions outlined for strategy 1, contribution reserving is not available to employees. This strategy is only possible through an SMSF and additional fees may apply to ensure all necessary paperwork is drawn up and the timing of the contributions are compliant.

For all strategies, investors need their accountant to calculate their expected taxable income and allow for any prior years’ losses and discounts to work out the final capital gain. Without accurate calculations your contribution may be disallowed.

Selling property or shares is a big decision and these are complex strategies that take time to work through, so it’s important to get advice now. Next month we’ll discuss options for managing the $1.6 million pension balance transfer cap, including the CGT relief on offer within super funds, and other ways to beat the tax man.