Capital gains: Reducing tax via super contributions

Q: I have a self-managed super fund (SMSF) and I also have two investment properties in my personal name. When I sell the properties, I will be required to pay capital gains tax. Can this capital gains tax be offset by a contribution to the SMSF which would be tax-deductible? Would there be a 15% contributions tax? I am 60 years of age, but not retired.

Trish’s response: Reducing the amount of income tax payable, including income tax payable on net capital gains, by making concessional (tax-deductible or salary sacrificed) super contributions remains a popular strategy.

Concessional contributions will be subject to 15 per cent tax when entering the fund. Note that the annual limit for concessional contributions is $50,000 for anyone aged 50 or over for the 2011/2012 year. The contributions cap is $25,000 (for the 2011/2012 year) for anyone under 50 years of age. For the 2012/2013 year onwards, the Government intends to continue the special over-50s concessional contributions cap for those Australians who hold less than $500,000 in super. I explain this proposed change in the article Super contributions: What’s going on with the over-50s concessional cap?

Note: A self-employed or non-employed individual can only claim deductions for super contributions against assessable income, such as salary, investment income and capital gains. For employees, entering a salary sacrifice arrangement (making before-tax contributions to a super fund pursuant to an arrangement with an employer) is another popular strategy used to reduce an individual’s taxable income. Superannuation Guarantee contributions are treated as concessional contributions.