I am trying to get my head around this but can you reduce CGT by contributing your after tax money into super. Say I bought an IP on 1/6/2015 for $400k. Later sell the property on the 1/6/2018 for $440k. CGT is $40k. Holding it longer than 1 year means a 50% discount. So CGT is $20k. I am a PAYG worker and earn $50k. So this financial year taxable income should be 50k+20k= $70k. This $20k CGT is taxed at 32.5%. On the 2/6/2018 I make an after tax contribution into my super (concessional) of $20k. From what I understand this reduces your taxable income back down to $50k. There is a 15% contribution tax into super so effectively the $20k CGT is now taxed at 15%. Would this work or have I missed something?
That's it basically. You make a deductible contribution which reduces your income. But the limits are minimal.
Your after tax contribution will be read as a "concessional" contribution. It is tax deductible so not really "after tax". And take care that your employer SGL contributions do not tip you into excess concessional contribution tax country with timing of payments. You might be able to do a PAYGW variation to help on cashflow. But you have the guts of it.
I always thought that after income tax the contribution to super should be no further taxes as he already paid his PAYG taxes? If before income tax then 15%. This is not easy
Do a lot of people use this strategy? I know its only up to $25k and you have to account for the 9.5% super guarantee but every cent counts.
not many could use this strategy under the old 10% test but from 1 july it will become a very common strategy
She is a good simple strategy that works. Small but awesome. Compounds up after a few years. Watch the fees from the investment advisors because they clip a lot from it and some push to bank product and go volume rebates with white labelling.
Its important that the annual concessional cap isnt breached. In the OP example earning $50K the employer would contribute $4750 to super leaving a further $20,250 available. BUT many employers dont always pay super in consistent payments and its possible 5 quarters could be received by the fund and this may cause excess contributions of $1200....The accurate way is to check actual amounts contributed on or after 01 July of the year. The taxpayer must also follow a strict process to access a tax deduction. It is NOT automatic. If the taxpayers clams a deduction and doesnt follow the process the ATO will detect it months after lodgement and then disallow the deduction claimed and there is no way to correct it. I must receive three - five enquiries from PCers a year on this issue and I suspect after 01 July it will expand in size. Its very common to stuff up that deduction. Tax agents know the issue The extra super will reduce tax on the CGT issue by approx $10K max. And the $20K is preserved. As Ross says however it can compound up OR DOWN in the fund depending on the fund investments and the market performance.
I did this. I sold an IP sold with the strict instructions to the agent not to sign until July 1. In that financial year I put $35K into Super then retired in December. I had 4 months LSL but asked my employer if I could have 6 months leave without pay first. So i effectively had no pay for that financial year. I then took the LSL in the next financial year before officially retiring. Saved quite a bit.
These are very common retirement tax planning strategies. When people consider it. Well done. I'm not sure that instructing an agent not to have a contract signed is a truly effective CGT strategy - At best its not one for mention. If there was an agreement to make the contract before 30 June you could have a CGT event earlier. Especially if the agreement included removing the property from market. If you stall and delay a contract its likely to be OK I recall a case years back where the agent asked the buyer to sign it with a date of 2nd July ....Deposit was taken on 29th June....Inconsistency led to review. Buyers told ATO it was signed in June but dated July at request of agent...Vendors thrown under the bus.
