Retrospective Super

Discussion in 'Superannuation, SMSF & Personal Insurance' started by Sheshop, 31st Mar, 2021.

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  1. Sheshop

    Sheshop Well-Known Member

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    Morning, for the past 12 years my husband has been self employed and paid himself next to no super and I've been working part-time raising the kids and working for him so I too have hardly contributed to my super. I am about to finish off a small subdivision and was thinking of using some of the profit to top up our super. My question is, can I do this tax-free and if so, how much can I contribute without paying tax on the super?
    My thoughts are, I pay us both 9.5% of our taxable income over the past 5 years like we would have been entitled to?
     
  2. Foxdan

    Foxdan Well-Known Member

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    You need to speak to an accountant. This is not a “ask a forum” question as there are many tax implications and what you can put into your super will depend on your age.
     
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  3. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Not sure what you mean by tax free. There are four primary ways for each taxpayer.
    1. Concessional contributions which may boost a deduction
    2. Catch up concessional contributions - also deductible which may allow a much larger amount that in 1.
    3. Non-concessional contribution
    4. Bring forward a further two years concessional contribution.

    Some basic tax planning and advice concerning caps etc would be very sensible to avoid costly errors and save some tax. If it were me advising I would also want to understand the profit expected on the subdiv etc too. Super may give a small tax benefit to save a little tax.
     
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  4. Sheshop

    Sheshop Well-Known Member

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    When I say "Tax Free" I mean pay super so it reduces our taxable income.

    Say for instance we normally make $100k each and now this year we make an extra $500k from the development, it pushes us up to $350k each. I would like to reduce that amount as much as possible so I am thinking one legitimate way is to pay ourselves some super and Im hoping I can try to catch up on what we have missed out on over the years. I just wasn't sure if that was possible - just brainstorming during lockdown here in Brisbane... I will google your option number 2, that sounds like what I'm looking for.

    We are both in our early 40's and have less than $200k in super between us. I know its a big amount to pump into our super and we can't touch it for another 20 years but I'd rather the profit go to us instead of the ATO wherever possible.
     
  5. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    On the "tax free" issue you may misunderstand. Many taxpayers claim a deduction for a contribution which may be at their marginal tax rate which is ofen 21% - 47%. Then the contribution is taxed in the fund at 15%. So a net saving of up to 32% possibly. Now you cant do that for $200K. But it might be $50K each. Tax savings "banked" could be $30K. Better you keep it than the ATO since ScoMo isnt spending it well at the moment.

    Personal tax advice and planning is really required. Its illegal for a response otherwise as it would encourage a cotribution in contravention of the Corporation Regs as it becomes financial advice. I argue all 4 options are to be considered !! I have seen people with similar concerns but if its a decent lump sum it may even allow some POSITIVE geared property in a smsf and its legit tax avoidance. Super in Australia is one of the best tax schemes on the planet. Its not just putting into super with some tax savings its also making it work harder for future growth as well.
     
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  6. Sheshop

    Sheshop Well-Known Member

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    Yeah my thoughts too. I want to make our super work for us, since hitting the BIG 40 it suddenly hit me that we have no real plan for the future. I appreciate your reply and will seek some tax advice. I'm due to meet with our accountant in May and wanted to have some kind of questions and options to put forward to him because I always leave more confused than when I started. I know you are based in Sydney but do you service interstate clients or am I best sticking with my accountant that manages our business tax?
     
  7. Scott No Mates

    Scott No Mates Well-Known Member

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    Technology is a wonderful thing - he does video conferences.
     
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  8. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Clients are global. I see no reason to physically meet as im not a super model
     
  9. Deplorable1

    Deplorable1 Active Member

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    Hi Paul, 71 and retired on super. I don't have the option of adding to the existing fund that I am getting payments from. Is the $25k concessional contribution available in my case for the current and some previous tax years, provided that I signed into a new fund to receive the contributions? - What limits on later withdrawal if needed?
     
  10. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I cant address that as many personal factors affect it.

    You will need to consider the work test which may allow (some ?) contributions, or not up to age 75.
    A concessional contribution is not as simple as that. A concessional contribution is affected by the work test and taxable income and is explained in detail here
    There is also the downsizer contribution cap which doesnt even consider the work test and has no age limit. I recently saw a 83+85 year old couple open a super account and put $600K into super. They never had any super and hadnt even considered the income it can produce could be tax free

    Returning contributions
     
  11. Deplorable1

    Deplorable1 Active Member

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    Super changes to benefit older Australians
    'More older Australians will be able to use some of the profit from the sale of the family home to top up their superannuation, under changes to be announced in the federal budget.

    Currently, people older than 65 years who sell the asset can make a one-off contribution to their retirement savings of up to $300,000.

    The budget to be handed down on Tuesday will lower the age threshold to 60 years from July 1, 2022, the Australian Financial Review reported on Monday.

    As well, the work test for self-funded retirees - which limits super top-ups - will be scrapped for those aged between 67 and 74 years, the AFR said.

    At present, this group has to be employed for at least 40 hours in a consecutive 30-day person in a financial year before they can make concessional or non-concessional contributions.'
     
  12. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    The "downsizer" changes announced in the budget are a smart move. I always found the age base of 65 was a concern. Many people approach retirement at age 60-65 and also consider property sales etc. By age 65 they dont want to rearrange assets. This opens a huge opportunity for owners of property to rearrange their affairs and save on tax in retirement. Reminder of the conditions (inc new ones) to add to super.
    • You OR spouse must have owned the property at least 10 years prior to sale. If Mary owns a property and sells it then both her and a spouse can both use the rules.
    • You OR spouse must have have lived in that property as their main residence at least 1 night in ownership period to trigger pro-rata or partial exemption under the main residence test (Warning - Take care with absence choices. Leave at least one day !! )
    • Home is in Australia and isnt a RV, boat or caravan or portable home. Doesnt apply to land either since land cannot be a main residence
    • Within 90 days of sale you make a downsizer contribution (done not need to be from those monetary proceeds !!) to the fund. It is not taxed.
    • You nominate a contribution to a fund as a downsizer contribution - A taxpayer can only do this ONCE in a lifetime and it is limited to $300,000 per person eg $600K max per couple. It is not based on profit, equity or anything else.
    • The contribution amount is merely limited by the total sales value. eg Fred and Mary sell a former home (now a IP) for $500K. This will limit their contributions to $250K each. Nancy can sell a property for $300,000 and repay her bank $298,000 and still make a downsizer contribution from her savings.
    • The contribution is not taxed. It also doesnt count to caps. The downsizer is a additional "cap". However if a sale does result in a taxable CGT amount the taxpayer could be eligible to also make a personal concessional contribution to save tax but this portion would count to their concessional cap.
    • The downsizer savings may produce tax free income of a fund member aged 60+
    • Each member can draw a pension from the fund that is also tax free. (Subject to the $1.7 total super cap)
    • On death, the member can leave that element to an adult child without tax consequences. Or to their estate in the same manner.
    Benefits of downsizer choices
    • May reduce personal taxable income through sale of a positive geared property.
    • Allows savings to go from a taxable environment to a tax free environment.
    • Can be used to equalise member balances eg spouse OR to enhance both account balances
    • Strategy can be used to "wash" taxable elements so adult kids wont pay tax on super death benefits
    • Actual property sale proceeds dont have to actually be used. eg Fred and Wilma sell a property for $800K. They repay a bank loan of $350K. They know they must pay $50K CGT. This leaves $400K to contribute. However, Wilmas super balance is all employer contributions of $200K. She withdraw all this. She contributes a new $300K and Fred contributes $300K. Now on death their adult kids wont pay 17% x $200K.
    • Can be used for a present 100% IP. What you say ? How ? Fred and Wilma can move home to their Gold Coast IP for a period of time. Enjoy the summer and the move to QLD then sell. It fulfils the residence test and now can access the benefit.
    Limits to the strategy
    • What is the CGT impact of the sale ? But sale can be deferred to a time when their taxable incomes are low.
    • Cannot be transferred or sold to a smsf. It is prohibited.
    • The residence requirement.
    • Once a lifetime opportunity.
    • Is tied toa property sale taht must meet conditions.
    • May unfairly target poorly advised property owners to sell a home that is aexempt pension asset to put $$ into super which is not an exempt asset.
     
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  13. See Change

    See Change Well-Known Member

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    think the work test has gone with the budget .

    Cliff
     
  14. ChrisP73

    ChrisP73 Well-Known Member

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    ...sell, contribute $600k to super for a couple and purchase a more expensive home! Upsizer contribution!
     
  15. craigc

    craigc Well-Known Member

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    Thanks Paul, this summary opens up possibilities I was not aware of / considered.
    (Without research admittedly) I assumed related to current MR/PPOR only.
    Cheers
     
  16. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Wrong assumption. The downsizer only contains a requirement that it was occupied as the taxpayer main residence at some point in time in the past 10 years. It could have been long ago, a week or a month or even just the initial 6 months etc. There is no requirement it is their home. There is also no requirement that any of the sale proceeds be attributed to the super contribution.

    eg Fred owns and sells a IP only he owns (which was once his and wife Wilma's home for three months around 11 years ago). Its sells for $600K. The sale repays the bank debt of $600K. They use $600K of cash in their savings to contribute $300K each to super. They were always stopped from contributing by work test and age rules.
     
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  17. danielcannan

    danielcannan Well-Known Member

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    Only for non-concessional contributions, from 1 July.
     
  18. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Yes, when the law is passed also.If the law didnt get passed for some reason (ALP) the issue could still impact people.
     
  19. craigc

    craigc Well-Known Member

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    Hi @Paul@PFI,
    Can you clarify above example please;

    How many years ago can it be?:
    Or
    Reason I’m thinking does this open up a possible planning opportunity;

    Eg: Ex MR/PPOR owned 100% Spouse A and lived in by both spouses for approx 6 months and then rented since approx 2017.
    Valuation obtained approx $640k at this time of first earning income.

    Souses A & B moved to new MR from this time onwards. (Greater $ value).

    If old MR held as IP until sold in retirement years as spouse A reaches >60years for say approx $1M in 2034. (17 years since MR).

    Spouse B has low super balance solely from compulsory employer contributions. (say less than $100k).
    Spouse A super >$1.7M.

    Under the current/proposed budget rules - Could a large downsizer contribution to Spouse B super work tax efficiently for both spouses?

    I agree if there is a change of government the rules could all be changed by 2034, but just as per budget proposal rules that you’ve highlighted above.

    Is there something obvious that would be a (tax) disadvantage in the example above?

    Appreciate your thoughts.
     
  20. AndrewM

    AndrewM Well-Known Member

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    The property has to have been owned by you or your spouse for at least 10 years and the proceeds have to be at least partially exempt from CGT under the main residence exemption (or would be entitled to it for pre-CGT).

    Regardless of the super balances you are capped at a maximum of $300,000 per spouse currently, but depending on rules at the time there could be opportunities to even up balances with personal contributions which could maximising the funds which are moved into retirement phase for tax efficiency.
     
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