ASK NOEL

My husband and I are trustees of my self-managed super fund. I'm 53 and will contribute my personal holding of shares into this fund as an "in specie transfer". Can I apportion $30,000 of it as a concessional contribution? In the 2011-12 financial year, I earned dividends of $70,000 and I could reduce my tax if I make a concessional contribution into the SMSF. I plan to contribute the balance of the "in specie' transfer", about $420,000, as a non-concessional contribution.

By InvestSMART · 28 Jul 2012

By InvestSMART ·
28 Jul 2012

Comments

Noel Whittaker answers your questions

You are free to allocate the contributions as you wish, as long as you don't exceed the caps. I suggest you involve your adviser or your accountant, because there are heavy penalties for getting it wrong. Make sure you nominate the respective proportions at the time the contribution is made.

In a recent article, you suggested to "salary sacrifice the maximum to super with the aim of creating a fund within super to pay off the investment debts when you reach retirement age". Neither I (nor my financial adviser) understand this comment about a separate fund within super. Could you elaborate?

The strategy is based on taking advantage of the difference between the 15 per cent entry tax on deductible contributions and your own marginal rate. There is no discrete fund inside super what we are trying to achieve is an increase in your super balance that can then be withdrawn tax-free after age 60 to pay off your loans.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature. Readers should seek their own professional advice before making decisions. Email: noelwhit@gmail.com.

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Frequently Asked Questions about this Article…

Can I apportion part of an in‑specie transfer of shares to my SMSF as a concessional contribution?

Yes. The article explains you can allocate an in‑specie transfer between concessional and non‑concessional contributions as you wish, provided you do not exceed the relevant contribution caps. Make sure you nominate the respective proportions at the time the contribution is made and involve your adviser or accountant because there are heavy penalties for getting it wrong.

What’s the difference between concessional and non‑concessional contributions when transferring shares into an SMSF?

Concessional contributions are generally deductible and are subject to the 15% entry tax in super, while non‑concessional contributions are made from after‑tax money. The article uses an example where $30,000 was treated as a concessional contribution and about $420,000 as a non‑concessional contribution, but you should check caps and seek professional advice before acting.

Do I need to nominate how much of an in‑specie transfer is concessional versus non‑concessional?

Yes. The piece advises you must nominate the respective proportions at the time the contribution is made so your SMSF records reflect how the transfer is treated for contribution caps and tax purposes.

Can making a concessional contribution to my SMSF reduce my tax on dividend income?

Potentially. The article notes a reader who earned $70,000 in dividends could reduce personal tax by making a concessional contribution into their SMSF, because concessional contributions are taxed at 15% in super instead of the contributor’s higher marginal tax rate. Always confirm with your accountant or financial adviser first.

What did Noel Whittaker mean by creating a ‘fund within super’ to pay off investment debts?

Noel explains there is no literal separate fund inside super. The strategy is to salary‑sacrifice the maximum to grow your super balance (taking advantage of the 15% tax on deductible contributions versus your marginal rate) so that you can withdraw that increased balance tax‑free after age 60 and use it to pay off investment debts.

Is there a separate account or legal entity inside super that holds money specifically to pay debts later?

No. According to the article, there is no discrete fund inside super. The goal is simply to increase your overall super balance now so you can withdraw funds tax‑free after age 60 and use them to pay debts if you wish.

What are the tax advantages of salary sacrificing the maximum into super?

The main tax advantage described is the gap between the 15% tax on concessional (deductible) contributions and your personal marginal tax rate. By salary‑sacrificing into super you may pay less tax on those contributions, grow your super balance, and potentially access that money tax‑free after age 60 to pay off loans. Discuss specifics with a professional to see if it suits your situation.

Should I seek professional advice before making in‑specie transfers or salary sacrifice decisions for my SMSF?

Yes. Noel Whittaker’s answers are general in nature and the article repeatedly recommends involving your adviser or accountant. There can be heavy penalties for getting contribution treatment wrong, so get tailored professional advice before acting.