I am 69 years of age and not working full time. I am living off the income from 2 rental properties and have the opportunity of part time employment. I have been advised that if I work 40 hours in a 30 day period I can make a lump sum contributation to superannuation. I do not have any superannuation at the moment. My plan is to work the 40 hours and get a pay slip to prove I have completed this requirement and join a superannuation fund. I am then going to sell at least one of the rental properties and make a lump sum contributation to superannuation. I am told that if my income from wages does not exceed 10% of my total income I should be able to offset the capital gains tax I would be liable for against my super contribution thus not paying the the capital gains amount. To make things a bit more interesting I am thinking of working part time each week and salary sacrificing all my income to super. That is at the end of the financial year I will only have a net income of the amount earned for the 40 hours in a 30 day period. The rest of monies earned would be in super. I am told my employer sends a statement to the taxation department showing the full amount earned for the year but of course my group certificate will only show the amount for the 30 day period. The balance would be directly into super. I have checked with an advisor from the taxation department and they told me I could do this but I would much appreciate your comments. I took some advice from a financial councillor for last year and it was not accurate. Thanking you in anticipation of your comments Yours Sincerely Leslie
Here is the short and punchy version:
1. Yes, at age 69, if you work 40 hours in 30 consecutive days you can make a lump sum contribution to super of up to $150,000 non-concessional (after tax/your own money) plus up to $50,000 concessional (the part you claim as a tax deduction). You cannot use the 3 years bring forward provision of $450,000 into super after age 65.
2. If the property disposal frees up more than $200,000, then you will have a problem getting all the money into super this financial year.
3. Yes, if your income from wages (personal exertion income) does not exceed 10% of your assessable income, then you can claim a deduction for the superannuation contribution and thereby help to offset capital gains tax on the property. Note this rule was amended in Federal Budget09 and you will need to seek professional tax advice to determine if you will qualify.
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To qualify, the amount earned as an employee (for superannuation guarantee purposes) must be less than 10% of your combined assessable income (i.e.. before deductions) and reportable fringe benefits for that income year. This is the case regardless of whether your employer has paid super on your behalf (salary sacrifice).
In other words, salary sacrifice does not diminish your assessable income anymore in order to qualify for the 10% rule…a very nasty change for all property investors.
4. So, if you work the rest of the year part time as mentioned, then all of this income will be treated as personal assessable income and you may not meet the 10% rule. You will have to plan your “wages” assessable income VERY carefully to meet the 10% rule so that you can claim a deduction for the super contribution in order to offset the capital gain on the property. (You know, the whole she swallowed a spider to eat the fly routine…)
5. Finally, there may be little point in salary sacrificing all that extra part time income to super as explained in another article. If the capital gain from the property and income from working the 40 hours in 30 days is over $30,000 for this financial year, then by all means boost your super by using salary sacrifice…but again, be careful re point 3.
By Jeremy Gillman-Wells, Financial Planner, Bentham Financial Group
Jeremy Gillman-Wells is an Authorised Representatives of AMP Financial Planning Pty Limited | ABN 89 051 208 327 | AFS Licence No 232706. In order to get the latest newsletter, click here.
Other articles in this week’s newsletter
Portfolio Watch – a stock portfolio for big income & capital gain
Making lump sum contributions to super
How can a share price rise when the market is closed?
How to choose investment software
