Boost your super and manage CGT shares
For those who are recently retired, or close to it, and hold shares outside of super, they often wish for a way to get them into super without incurring a big capital tax bill.
That’s because as retirement draws nearer, the barrier to accessing super becomes less of an issue, making the lower-tax environment within super even more attractive.
The good news is, it’s not too late. For some people, there may be more room than they realise to undertake this type of restructure before 30 June – particularly if they can use a tax-deductible super contribution to help offset some or all their potential capital gains.
So, how can this potentially work for an investor?
If you’re a share investor, moving your portfolio into super could be very beneficial
It’s an opportunity to top up your super – which may have dropped in value with the market downturn. With interest rates having been low for several years, you may not have much cash reserves to otherwise make a contribution.
Future income – and capital gains – will be taxed at a maximum tax rate of 15% inside super. If your super balance is under $1.6 million at retirement you could structure your super so that you pay no tax on future income or capital gains. Over the longer term, these savings could add up.
It may ease your future accounting and administration costs too - by housing all your investments in one structure (your super fund).
You may not have to sell your share portfolio to use this strategy
If you’ve got a self managed super fund (SMSF) you don’t have to sell your shares. That’s because SMSFs can accept ‘in specie’ transfers of listed shares. This option is particularly attractive if you have an emotional attachment to the portfolio – often the case when inherited from a family member or if you’ve spent years building it up. But be aware, an in-specie transfer still creates a capital gains tax (CGT) event.
If you don’t have a SMSF, you can still restructure where your wealth is held, but would have to sell your shares and contribute the resulting cash to your super fund. This requires a careful plan to manage market risk.
Contribution limits still apply
In-specie transfers still have to be classified as one of the allowable super contribution types. That means you need to be eligible to make either a non-concessional contribution or a concessional contribution. If the portfolio of shares is quite large, using both contributions types together could potentially be beneficial.
Concessional contributions may help manage capital gains
Unfortunately, the resulting CGT is typically the biggest barrier to implementing this strategy, but with recent drops across share markets your portfolio may be sitting on a smaller capital gain or you may even have some losses. This may present a rare chance to transfer some or all of your shares into super.
Allocating some of the in-specie share transfer as a concessional contribution helps create a tax deduction to offset the taxable capital gains arising from the transfer of ownership, while the higher non-concessional contribution limit allows the super fund to accept a sizeable top up.
With the 30 June deadline looming, it’s important to get advice now
This strategy can involve quite a complicated calculation. Consideration needs to be given to share values on the exact day of the transfer and the estimated taxable capital gain position.
It’s recommended that if someone is considering this option, both their accountant and an adviser experienced with in-specie transfers is engaged to assist.
Whichever type of super contribution is made, holding investments in a lower tax environment over the long term can result in significant savings – and more wealth available for retirement . Knowing there’s an opportunity to manage CGT, it’s wise to start planning now because there are some eligibility criteria to work through and not many weeks left until the 30 June deadline.