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When it comes to your retirement savings, whether you invest in superannuation or in your personal name may make a difference to the amount of money you eventually receive. This is because of the different ways in which the Federal Government taxes superannuation and personal investments. |
The short-term window to covert your assets to super
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Boost your retirement savings before 1 July 2007
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Recently, the Government announced its intention to reduce the tax complexities faced by retirees and give greater flexibility over how superannuation savings can be drawn down. As a result of the Government’s recent announcements, before 1 July 2007 it is possible to make undeducted contributions to your superannuation fund of up to $1 million. After this date, a cap of $150,000 per year will generally apply. After this date, a cap of $150,000 per year will generally apply. |
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Maxim Business Consulting Group |
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February 2007 |
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Maxim Insight |
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Super Up, Tax Down |
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What are undeducted contributions? |
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Undeducted contributions do not have tax deducted from them. They allow you to put money directly into superannuation without having to pay any further tax on the contribution. In general, investments held in superannuation are subject to less tax than those that are not. |
The superannuation advantage
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For many people, using the $1 million limit to make undeducted contributions before 1 July 2007 means they may achieve greater long-term wealth by selling assets held in personal names, such as shares and property, and investing the proceeds into their superannuation fund. |
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Case Study 1 |
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Andrew is aged 46 and lives in Hillarys. In addition to owning his own home, he purchased an investment property in Subiaco five years ago for $200,000. In 10 years time, the property is estimated to be valued at around $384,000. If sold at that time, Andrew would incur a capital gains tax (CGT) liability of approximately $38,000. After repaying the outstanding loan of $200,000 and the CGT liability, he would be left with around $146,000. Andrew sells the property in May 2007 for $300,000, realizing a capital gain of $100,000. Because he has held the property for more than one year, he will only pay capital gains tax (CGT) on 50 per cent of the gain. Thus, Andrew pays CGT on $50,000 at his marginal tax rate, which amounts to $20,750. By converting his personal asset to superannuation, Andrew could potentially boost his available superannuation funds at retirement by almost $87,000. Assumptions: 2.5% pa capital growth; 4% pa income, 50% CGT discount applies on disposal of the property because the property was held for more than 12 months; Andrew’s marginal tax rate is 41.5% projected values are net of fees. |
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243 Hay Street SUBIACO WA 6008 PO Box 1938 SUBIACO WA 6904 |
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Telephone: 08 9489 2555 Facsimile : 08 9489 2556 E-mail: info@maximgroup.com.au |
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Maxim Business Consulting Group |
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Maximise Your Potential |
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Super Alert |