How to top up super after selling an investment property

Carry-forward contributions allow members to tip more money into super.

Carry-forward contributions allow members to tip more money into super. Photo: Getty

Question 1: Hi, I’m 52 years old and my husband is 61 years old. We have our family superannuation around $1.3 million together. We are planning to sell our investment property in June 2023, by which point we will have held it for more than 20 years.

If we can make the capital gain about $1.69 million, what’s the best way to minimise our tax, as we both still work full time and earn around $50,000 each, have three children, and will plan to gift some money to help them buy their first home? Plus, we’d like to put some money into our super. Can we put $330,000 each into our super?

From purely a tax perspective, you are able to offset your gain by any capital losses you have, or by selling another asset that will have a capital loss.

Will you have a similar income next financial year to this financial year? Selling an asset with a large capital gain when your income is lower will mean you pay a lower capital gains tax.

You can also look to bring forward any other tax deductions you may have to reduce your income in that financial year.

Making concessional (pre-tax) contributions to super will also lower your taxable income and reduce your capital gains tax.

This can be done either via salary sacrifice or via personal tax-deductible contributions. However, there is a cap on concessional contributions of $27,500 per individual every financial year (as at 2021-22). This amount also includes any employer SG contributions.

If either of you have a total super balance below $500,000, you could use the ‘carry forward’ provisions and contribute a higher amount. You can check your eligibility via your MyGov account.

You can check your MyGov account to find out the exact amount you can contribute to super using carry forward rules.

Of course, tax should not be your only consideration. Achieving a good sale price and timing the sale to fit in with other financial objectives are important.

You can place more of the proceeds of the sale into super by making non-concessional (after tax) contributions. Although this won’t immediately reduce your tax, it will place the funds in a very tax-friendly environment and help to build funds for retirement.

The annual cap on non-concessional contributions is $110,000, but you can ‘bring forward’ two future years of contributions and make a total contribution of up to $330,000 each.

Before making the contribution, you need to check your individual ‘Total Super Balance’ as at the previous June 30 to see the maximum amount you can contribute.

The below table summarises this:

Given your objectives and financial situation I would recommend seeking personalised financial advice. 

Question 2: We need to sell our house and downsize as well as buy something for a disabled son without losing our pension. We are 69 and 68 and our son is 44. 

Downsizing to a smaller home and freeing up some funds is a common and often appropriate thing to do as you age.

However, the value of your principal place of residence is exempt from the income and asset test and when you free up funds, these then start to be assessed for age pension purposes.

As I have written about previously, generally if you gift more than $10,000 a year, or $30,000 over five years, then this falls under Centrelink’s deprivation rules and they will still treat those assets as yours for five years (funds will be counted under the income and assets test over that period).

Perhaps you can look at a Special Disability Trust where eligible family members can gift up to $500,000 into one of these trusts and avoid falling under the deprivation rules.

Under these provisions, your son would need to meet one of three definitions of a severe disability.

Special Disability Trusts have to be set up in a certain way and I suggest seeking legal advice over whether your son is eligible and how best to implement the trusts.

Question 3: Due to the housing bubble, my parents have offered to use their property as security for our home loan approval. However, they are concerned it may affect their pension payments. Can you please advise if that is the case?

No, if your parents allow for their property to be used as security on your home loan, this will not affect their age pension.

For your parents, there will be many other things to consider, and there may be an option to only guarantee a part of the loan, so once you have built up some equity their property can drop off as security.

You should speak to a mortgage broker or lending specialist and your parents should seek legal advice.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives. 

The New Daily is owned by Industry Super Holdings

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