I am selling a rental property and expect a capital gain of about $230,000.00. For tax purposes I reduce it by half and pay capital gains tax on $115,000. Can I place this into our DIY super fund and pay the 15% entrance tax rather than including it in my personal return? Also, can I then have the accountant claim the 15% tax back on my personal income tax return? I am retired and only earn income from investments (no employer).
Yes, you are on the right track. Once you have discounted your capital gain it is added to your assessable income for taxation purposes.
If you are entitled to make a deductible contribution then you can contribute $100,000 per person (for over 50’s until 2012) to super. Care, this limit includes all deductible super so if you have performed any casual work that includes some employer-paid super it will be captured within this annual limit. If you are aged 75 years and over you will be precluded from claiming a deduction for any further contributions.
Once you have decided to make a deductible contribution to super this contribution will reduce your taxable income. But please be careful. There is no advantage to claim a deduction that will reduce your income to below $30,000. The reason for this is that you only pay tax at 15% (plus Medicare) for income up to $30,000 and this is same tax rate as super contributions tax.
For example, say your normal income from investments is $10,000pa and you have this once-off discounted Capital Gain of $115,000 in this year. Your taxable income is $125,000. If you are eligible to claim a deduction then you would only contribute $95,000 to superannuation to claim the optimal deduction. An additional $5,000 contribution would save you only 15% tax plus Medicare and this is almost identical to contributions tax of 15%, there would be no point!
It is probably best that this calculation be performed by your tax adviser to ensure it is accurate and meets the end-of-year deadline. So, in effect, you have not paid any personal rate of tax on most or all of this capital gain, and the only tax you have paid is the 15% contributions tax upon it entering the superannuation environment. And once it is within super this capital can be paid out to you free-of-tax when you have reached age 60.
Paul Jackson is a Brisbane-based Financial Planner with MacDonnells Financial Services, which is licensed under FYG Planners.
Disclaimer: This article is general in nature and is not intended as investment advice. Readers should always seek further advice before making any financial decisions.