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Sell an IP in retirement?

Discussion in 'Financial Planning Study Group' started by samaka, 11th May, 2009.

  1. samaka

    samaka Well-Known Member

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    Hi all,

    Just got my assignment for ELC back from Kaplan. Missed out by 1 point :(

    One of the notes the marker wrote down was about selling the couples investment property. All the wrote down was 'selling in retirement - why?'

    However I don't if they are saying they should do that (and explain why) or not? I certainly didn't suggest they do.

    What are the benefits of selling a property in retirement? I read this PDF which explains one way you could save on the CGT - but can't find anything else... not sure on what exactly they mean by "unsupported deductible contribution".

    http://www.wilsonhtm.com.au/KB/Retired and transferring weath to super strategy.pdf

    Any thoughts would be great!
     
  2. AsxBroker

    AsxBroker Well-Known Member

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    Hi Samaka,

    Um, the website you referred to is a bit out of date referring to Age Based Limits for contributions into superannuation (now the caps are either $50,000 for under 50 year olds and $100,000 for over 50s until 30th June 2012). It is really talking about self-employed or self-supporting using the 10% rule.

    A better paper to read is Substantially Self-Employed- Super Contributions: It's all in the timing; | ClearLaw Legal Bulletin | Australia which explains the 10% rule in a bit more detail.

    Essentially, self employed or non-employed persons who can take advantage of superannuation rules could make a tax deductible contribution to a superannuation fund to minimise their tax payable.

    Why would you make a deductible contribution?

    If you sold a property for $500,000 and make a capital gain of $400,000 (held for over 12 months, using 50% rule, $200,000 capital gain is assessable). Normally a 60 year old would have to pay $70,000 in tax (including Medicare Levy).

    If they made a deductible contribution of $100,000 into superannuation, they would pay tax on $100,000 of capital gain being $27,500 (incl Medicare Levy) plus $15,000 of contributions tax, totalling $42,500.

    This saves $27,500 in tax payable!

    Cheers,

    Dan
     
  3. samaka

    samaka Well-Known Member

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    Hi AsxBroker,

    Thanks for the great response. How I read it is that in this situation a 'non-employed' person can mean any run-of-the-mill retiree who is not working?
     
  4. samaka

    samaka Well-Known Member

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    Or to work it in with the example in the assignment. If the client sells the property for $280,000 from a purchase price of $90,000 - there is a discounted capital gain of $95,000 ($190,000 x 50%).

    If she were to contribute to the $100,000 limit then she would offset the entire capital gain liability AND have a further $5000 deduction available?
     
  5. AsxBroker

    AsxBroker Well-Known Member

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    Hi Samaka,

    Thats correct, so rather than paying tax at the marginal tax rate, the tax rate paid would be 15%. With Low Income Tax Offset there probably isn't much benefit reducing the income below $10,000 (unless of course their is other investment income).

    Cheers,

    Dan
     
  6. AsxBroker

    AsxBroker Well-Known Member

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    Hi Samaka,

    Any run-of-the-mill retiree who can make contributions into superannuation (ie, under 65 or self-employed and meeting the work test).

    Cheers,

    Dan

    PS This is general information, speak to your FPA registered Financial Planner before making a superannuation decision.