Super strategy

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In a nutshell, if you are approaching 60 and still working you should be salary sacrificing everything you can and then drawing a pension from your super fund after 1/7/07.


A super chance to transfer
Annette Sampson
February 21 2007

The strategy To transfer an asset into super by June 30.

Do I want to do that? It's all the rage, according to Multiport's technical services director, Philip La Greca. Investors are rushing to put money into super before June 30 to take advantage of transitional measures which allow after-tax contributions of up to $1 million. From July 1, lower annual limits will apply. As very few people have $1 million in handy cash, they must either sell assets to get the cash to contribute or find a way of switching non-super assets into super.

La Greca says Multiport has seen an explosion in so-called in-specie contributions (where assets are contributed to the fund instead of cash) into both new and established self managed super funds. The advantage here is that investors can retain the underlying asset - it merely shifts from being owned by them personally to being owned by their super fund. La Greca says in-specie transfers are up about 300 per cent on normal with many people shifting assets like commercial property and shares across to beef up their super benefits. From July 1, all super benefits can be taken tax-free once you reach 60.

Can I shift assets such as my investment property into my fund and pay less tax? Not exactly. For starters, there are strict limits on what assets super funds can acquire from related parties such as fund members, their family, and related businesses. La Greca says these rules also apply to in-specie transfers. Broadly, he says, in-specie transfers are limited to business real estate (property used wholly and exclusively for the running of a business), listed securities, and certain other assets that are exempt from the in-house rules for self-managed funds. The most common of these is managed funds. So residential investment properties are a non-starter.

Secondly, even though it may seem you're just transferring assets to yourself, you are actually disposing of the asset and your super fund is acquiring it. This means your super fund could be liable for stamp duty on its "purchase" and you could be liable for capital gains tax on the disposal of your investment.

It's critical to do a break-even analysis to work out whether the tax savings in the super fund will justify the costs. In some cases, particularly where you're sitting on a big capital gain, it may be better to keep the asset in your own name.


Can I avoid the CGT? If you earn less than 10 per cent of your income (including reportable fringe benefits) from employment, you may be eligible to claim a tax deduction on part of the "contribution" to offset your CGT. La Greca says your capital gain is included in your income in working out whether you meet the 10 per cent rule.

How does that work? Let's say you're transferring across a commercial property worth $1 million. You'll realise a $300,000 capital gain. Assuming you've held the property for more than 12 months, you'll be required to add half that gain - $150,000 - to your taxable income. Let's say your other income is $100,000 - $80,000 from running a small business and $20,000 from a part-time job. Normally you wouldn't be eligible to claim a tax deduction on your super contributions as your employment income is 20 per cent of your taxable income. But with the $150,000 gain added in, that $20,000 employment income is less than 10 per cent of your total income. If you are over 50, you could claim a tax deduction of about $105,000 on your personal super contributions to offset much of the tax on your gain.

Can I decide the price at which I dispose of the asset? The Tax Office requires in-specie contributions to be made at fair market value and on an arms' length basis. If you're transferring shares or managed funds, the value must be the price on the day of the transfer. Property is a bit trickier because it is not valued daily. La Greca says the Tax Office has issued a ruling which says a formal valuation is not necessary, but you need to be able to substantiate the valuation to a third party. (Remember, self-managed funds are required to be audited, so your valuation will be put up for scrutiny.) You need to have a documented basis for your valuation and be able to show it is reasonable.

Can I only do this with self-managed funds? Some public super funds allow in-specie transfers of shares and/or managed funds but in-specie transfers are not widely available. For this reason, La Greca says some investors are setting up self managed funds to take advantage of the $1 million limit - but he cautions again that the costs should be taken into account in determining whether the transfer is worth it.

This story was found at: A super chance to transfer - moneymanager.com.au