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 myself. I have an SMSF with Australian blue-chip shares now worth $250,000. I don’t use managed funds or master trusts. If we sell our properties, with a combined value of about $4 million then 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?
A: The $180,000 limit that you refer to in your question was the old after-tax contribution limit that was applicable until 30 June 2017. After-tax contributions are known as non-concessional contributions, and the annual limit is known as the non-concessional contributions cap. Since non-concessional contributions are after-tax contributions, they cannot be used to reduce capital gains tax liabilities.
Note: The non-concessional contributions cap (NCC) cap that applies for the 2018/2019 year (also applied for 2017/2018 year) is now $100,000, although individuals under the age of 65 can bring forward 2 years’ worth of NCC limits, and make up to $300,000 in NCC in one year. Again, NCCs cannot be used to reduce CGT.
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 2018/2019 year, the concessional contributions cap is $25,000, and this cap applies to all ages.
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, and how it may relate to superannuation, see the following SuperGuide articles:
- Managing capital gains tax with super contributions
- Capital gains: Reducing income tax via super contributions
- SMSFs: How do I calculate CGT on an asset sale?
- SMSFs: Selling a property asset and CGT
- Non-cash contributions, CGT and contributions caps
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. I explain the over-65 rules in the SuperGuide article For over-65s: Ten tips when making super contributions.
For more information about making super contributions, see the following Super Guides: