Know your super limits: Reducing CGT via concessional contributions

Q: I am one of those people (and my wife) who made the decision years ago to invest in property rather than super. Now at 60, (wife 57) I am retired and live off my property investments. I would like to get rid of the properties at about age 65. Mainly because of the worry, and maintenance upkeep, and to give us more free time as I manage the properties. I have a SMSF with Australian blue-chip shares now worth $80,000. I don’t use managed funds or master trusts. If we sell, combined value about $4 million and capital gains tax will eat into the sale value. Can we still contribute $180,000 each, per year to super and thus reduce our CGT liability.

Trish’s response: The $180,000 limit that you refer to in your question was the after-tax contribution limit, known as the non-concessional contributions cap, up to 3 May 2016. You can’t offset any personal capital gains tax (CGT) liability by taking advantage of this non-concessional cap, rather you can only use the concessional cap (see next paragraph). In any case, the $180,000 limit has now been replaced (subject to legislation and the Coalition winning the July 2016 election) with a proposed lifetime non-concessional cap of $500,000 (for more information see SuperGuide article Super stinker update: Immediate cut to non-concessional contributions caps).

The concessional (before-tax) contributions cap is the relevant contributions cap when considering strategies to reduce a CGT liability or reducing any other personal tax liability.

For the 2015/2016 year, for anyone aged 50 or over (more specifically, for anyone aged 49 years or older on 30 June 2015), the concessional contributions cap is $35,000, and $30,000 a year for anyone under the age of 50 (more specifically, for anyone aged 48 years or younger on 30 June 2015).

For the 2016/2017 year, for anyone aged 50 or over (more specifically, for anyone aged 49 years or older on 30 June 2016), the concessional contributions cap is $35,000, and $30,000 a year for anyone under the age of 50 (more specifically, for anyone aged 48 years or younger on 30 June 2016).

A registered tax agent, usually an accountant, can help you manage any tax bill from the sale of assets and superannuation may be just one of your tax strategy options. For general information on the topic see SuperGuide articles Managing capital gains tax with super contributions and Capital gains: Reducing tax via super contributions.

Note:  For the benefit of other readers, you must satisfy a work test if you’re planning to contribute on or after the age of 65, although the Coalition plans to abolish this work test from July 2017, if it wins the 2016 Federal Election. I explain the over-65 rules in the SuperGuide article For over-65s: Ten tips when making super contributions.

Comments

  1. Over the past 12 years my BT Future Goals & BT Multi-Manager Growth super fund has averaged a return of 3.22%. This return is barely greater than CPI. Can you please offer some advice as to what I need to consider when moving my investment to another fund.

  2. My husband and i are Both 67. He is retired and I will be at the end of this year. We both have a fist state super account and I also have a SASS (State Authority Super Scheme) with a total of approx $770,000. A large proportion is super contributed before tax. I have heard that there are tax benefits to redistribute the super into a pension account. I don’t understand the reason for or implications. Can you explain?

    Many thanks

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