Question 1: My wife and I are about to retire. We have two core investment properties that we plan to sell after retirement in separate tax years until the year of our retirement. We would like to split the sale of a property and put it into supers (accumulation accounts which we keep open). How much can we each put in our super and what are the tax implications even if we are retired? Thanks
A popular strategy is to sell assets that have made large gains after you retire, since you typically have little other taxable income. This is because the net capital gain is added to any other taxable income, so if you have little (or no) other taxable income, you pay a lower rate of tax on your capital gain.
Sounds like what you do.
You can then make two types of contributions to your retirement pension.
Concessional contributions include employer social security contributions and wage sacrifice contributions. But most relevant in this situation is a tax-deductible personal contribution.
You and your wife each have a preferential contribution limit of $27,500, and if you are not working, you will not have employer SG contributions that will reduce this allowance.
Also, if either of you has a total super balance of less than $500,000, you can use the “carry over” provisions and contribute a higher amount.
You can check your eligibility for the “Total Super Balance” and “Carryover” through your MyGov account.
Your carryover amount continues to grow even after you retire. This provides the opportunity to make significant tax-deductible contributions after retirement. Note that the super fund taxes these contributions at a rate of 15%, so you need to ensure that your deduction reduces your income tax by more than this rate (i.e. your marginal tax rate).
Please note however that although the Government will on July 1st remove the working test for people aged 67-74 for those wishing to make after-tax (non-concessional) contributions or wage sacrifices, it still applies to those wishing to make a personal tax-deductible contribution.
Therefore, if you are 67 or older, you must have been gainfully employed for at least 40 hours in a 30-day period to qualify. If you are under 67 at the time of contribution, no work test applies.
In addition to concessional contributions, you can make non-concessional (after-tax) contributions which put the funds in a very tax-friendly environment and help build wealth for retirement. There is no contribution tax on this type of contribution.
The annual cap for non-concessional contributions is $110,000, but you can “roll forward” two future years of contributions and make a total contribution of up to $330,000 each.
Before making the contribution, you should check your individual “total super balance” as of the previous June 30 to verify the maximum amount you can contribute.
The table below summarizes this:
As mentioned earlier, from 1 July you will no longer need to complete the work test to contribute to the superannuation – you will simply need to be under 75.
Given your goals and financial situation, I recommend that you seek personalized financial advice.
Question 2: Hello, my mother has been in an institution for seven years and her house has been rented to pay the costs of the retirement home. When my sister and I eventually inherit the house, will we have to pay capital gains tax on the property when we sell it? If so, how is it calculated?
An individual can leave their home for up to six years before the residence loses its exemption from CGT. This includes when moving into elderly care.
The exemption can last indefinitely if the property has never been rented out or used to produce income.
As it has now been over six years since your mother left the property, some CGT will apply, but you will also benefit from a partial exemption based on the percentage of time the property has been used to produce income.
As this is a complicated area, I suggest seeking personalized tax advice.
Craig Sankey is a Certified Financial Advisor and Head of Technical Services and Advisory Enablement at Industry Fund Services
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