Capital gains and super: Using super contributions to reduce your CGT bill

It’s important to note CGT is calculated by adding a taxable profit from an asset sale (like an investment property) to your other taxable income (such as salary, investment income and capital gains) in the year the sales contract is signed.

Making a super contribution minimises the impact of CGT by reducing your taxable income through a concessional contribution. In this situation your CGT is reduced because any tax deductible concessional contributions you make into super reduce your overall taxable income, which may keep you in a lower tax bracket.

What assets can be used?

Although this strategy is mainly used to reduce the CGT when an investment property is sold, it’s important to note it can be used with any asset sale that creates a capital gain.

This includes the capital gain on shares or other investment assets like art works or coin collections.

What contributions can you use to offset CGT?

The short answer is any concessional (before-tax) contributions. Concessional contributions include:

• employer contributions (including contributions made under a salary sacrifice arrangement), and
• personal contributions claimed as a tax deduction.

If you make a personal contribution and plan to claim a tax deduction, you need to submit a valid Notice of Intent to Claim or Vary a Deduction for Personal Super Contributions form from the ATO.

Before lodging your tax return, you also need to receive an acknowledgement from your super fund that it has received the completed form.

Contribution options: Using ‘carry-forward’ concessional contributions

In certain situations another type of super contribution can also be used to offset a CGT liability.

From 1 July 2018, anyone with a Total Superannuation Balance of under $500,000 can access their unused concessional (before-tax) contribution caps to make additional or carry-forward concessional contributions.

Examples of reducing your CGT liability

Tips and traps when using super to reduce your CGT bill

• Ensure you do not go over the annual concessional (before-tax) contribution cap ($25,000 in 2018/2019), as tax penalties apply.
• Remember all concessional super contributions incur a 15% tax when entering the super system.
• Super contributions made by your employer on your behalf (including salary sacrifice amounts) are counted towards your concessional contributions cap for the financial year.
• Carry-forward contributions can only be made if your Total Superannuation Balance is under $500,000.
• Ensure any extra concessional contributions you make are in the same financial year as the asset sale and CGT liability. The date for triggering CGT is the contract date for the asset sale – not the date of settlement – and these can be very different for property sales.