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Issue 9, November 2006
Super Concepts e-SuperUpdate provides you with technical tips and updates on Self Managed Superannuation Fund topics of interest.
Act Now to Boost your Super Savings
Recent research into superannuation by the University of Canberra has found that nearly half of the baby boomers, those 45 to 60, could end up surviving on just the age pension in their retirement.
For anyone who wishes to receive an income of about $50,000 p.a. over the 20 to 30 years potentially spent in retirement they will need to have up to $1million invested in superannuation or private savings. The gap would seem to be large for many people. However, the announcements in this year’s federal budget and in early September mean that you must act quickly to take advantage of a window of opportunity which is potentially available until 30 June 2007. From that time greater restrictions will be imposed on making after tax contributions to superannuation, particularly for those older than age 65.
The proposed rules for superannuation contributions permit a person to make tax deductible and after tax contributions. These contributions can be made in cash or by transferring certain approved assets such as listed shares or property to the fund. Until 30 June 2007 it is possible to make an undeducted contribution of up to $1million to superannuation between 10 May this year and 30th June 2007. However after 30th June 2007, you will only be able to contribute an undeducted contribution of $150,000 p.a. or $450,000 over a three year period.
There are various strategies available enabling you to take advantage of the $1M window of opportunity.
Let’s consider David
He is in his 50s and does not have the ready cash to contribute to superannuation. However, he does have investments which can be transferred to his self-managed superannuation fund. He is self-employed and wishes to boost the amount he has in superannuation before retiring in a few years. David owns some public company shares valued at $150,000 and a commercial property currently valued at $600,000.
If David wishes to transfer the shares and the commercial property to his self managed superannuation fund there are a few things he needs to consider. These would include:
- whether the shares or the commercial property can be transferred to the fund;
- whether it is worthwhile for David to claim a tax deduction for the value of the shares or commercial property transferred to the fund or have the transfer treated as an after tax ‘contribution’; and
- capital gains tax, stamp duty and other costs associated with the transfer of the shares or property.
The superannuation legislation will permit the transfer of listed company shares however David will need to consider the capital gains tax and stamp duty issues. In relation to his commercial property, there must be no mortgage or any other charge over the property. Let’s assume that there is no mortgage over the property owned by David and he is going to transfer both the property and shares to his self managed superannuation fund.
The next step is to determine whether it is worthwhile for David to claim a tax deduction for part or all of the contribution. As David is self-employed he is eligible to claim a tax deduction for superannuation contributions. This can come in handy to offset any taxable capital gain that may arise on the transfer of the shares and property to the fund.
Let’s look at David’s overall position:
| Value of shares and property |
$750,000
|
| Taxable capital gain on transfer of assets to the fund |
($100,000)
|
|
$650,000
|
|
| Tax deductible contribution claimed |
$100,000
|
|
$750,000
|
|
| Tax on superannuation contributions (15% of $100,000) |
($15,000)
|
| Increase in David’s Self Managed Superannuation Fund balance |
$735,000
|
The amount David has transferred to his superannuation fund will provide sufficient for him to live in retirement. If he decides to take a pension from the fund when he reaches age 60 it will be completely tax free from 1 July 2007. In addition, any income and capital gains earned on assets which are used to support the pension will be tax free as well.
Now is the time to review your existing self managed superannuation fund and make plans to ensure that you are utilising the most current financial planning strategies available to you. Act now and seek advice – Your $1M undeducted contribution window of opportunity closes on 30th June 2007.
Should you have any questions regarding this strategy please contact Super Concepts on 1800 625 644.
Contact us today. It's the surest way to put your mind at ease.
A must read for anyone wanting a plain English guide to self managed superannuation.
