Weakness in the market has a surprising upside for super.
Planners are recommending that this is a good year to look at making an in-specie transfer of shares or managed funds to super funds.
It is a technique that allows investors to move assets that are held in their own name into super, where they are subject to more generous tax treatment.
The catch is that the transfer involves a change in beneficial ownership and may trigger a capital gains tax liability.
However, with the weakness of the sharemarket in the past year, capital gains should not be much of an issue for in-specie transfers before June 30.
David Simon, the executive financial planner at Westpac Premium Financial Services, says this is a very good opportunity: the advantage is that it moves an asset from a tax environment where the individual might be paying 46.5 per cent tax on dividends or fund distributions to one where the 15 per cent super fund tax rate applies.
And when the super fund moves into its pension phase, there is no tax on fund income and no capital gains tax liability on asset sales.
Simon says the strategy is most often used by trustees of self-managed funds but some administration services, such as BT Portfolio Wrap, also allow it.
Generally, self-managed funds are prohibited from acquiring assets from related parties. However, there are exceptions, including property used for running a business, listed securities (such as companies traded on the Australian Securities Exchange) and managed funds (provided they are widely held unit trusts). Assets being acquired by a super fund via in-specie transfer must be purchased at market value. The transfer is treated by the Tax Office as a "CGT event" - the disposal may produce a capital gain or loss.
Under the superannuation contribution rules, an in-specie transfer is treated as a personal member contribution - that is, a non-concessional contribution.
The cap on non-concessional contributions is $150,000 a year (and is on top of the concessional contribution cap). Under age 65, fund members can bring forward three years of non-concessional caps and contribute $450,000 in one year.
Simon says people making in-specie transfers may also be able to use the contributions to qualify for deductions and offsets.
Part of the transfer can be treated as a spouse contribution. If the spouse earns less than $13,800 in the year to June 30, the fund can apply for a spouse tax offset of 18 per cent of up to $3000 - that is, a maximum rebate of $540.
A self-employed person can claim an income-tax deduction for some or all of an in-specie contribution.
Balance your capital gains tax liabilities
A capital gain or loss is the difference between what it cost you to acquire an asset and what you receive when you sell it.
- All assets acquired since capital gains tax (CGT) was introduced in September 1985 are subject to CGT, unless specifically excluded (the family home, cars and personal-use assets). Shares, managed funds and investment property will attract CGT.
- For tax purposes, the cost of acquiring the asset includes the money paid for it, plus professional service fees and stamp duty etc, costs of owning it (insurance, repairs, interest on borrowings, rates, other taxes) and capital costs incurred in preserving its value.
- You can't claim capital loss against income but can use it to reduce a capital gain in that income year.
- If capital losses exceed gains in an income year, you can carry the loss forward and deduct it from capital gains in future years.
- The CGT rate is the individual's top marginal rate. If the asset has been held for more than a year the gain is discounted by half before tax.