Many readers would be aware that Non Concessional Contributions (NCC), that is the non-tax deductible contributions, or transfers from your own bank account into your superannuation account will reduce from $180,000 to $100,000 from 1 July 2017.
Most people would also be aware that the tax deductible superannuation contributions or concessional contributions (CC) will also reduce from 1 July 2017. For the 2017 financial year the maximum permitted tax deductible contribution is $30,000 unless you are aged 49 years or older in which case the maximum concessional contribution is $35,000. From 1 July 2017 this amount will be reduced to $25,000 per annum.
It is generally considered that if a couple were to retire today you would need approximately $900,000 in joint superannuation and retirement assets to afford a comfortable retirement. If this superannuation was invested in a Balanced Fund then you could draw $1,100 per week but the funds would expire within 25 years.
So the key question that everyone wants to know, is how do I get my superannuation to be worth $900,000 when I can only contribute $25,000 per year and that includes my 9.5% compulsory superannuation from my employer. It is also important to note that this target figure of $900,000 is increasing each year with CPI, the increasing cost of living. So, if inflation next year is say 2% then this figure of $900,000 will increase by 2% to $918,000.
Therefore, depending on your current superannuation balance and the amount you propose to contribute each year, most people will not get anywhere near $900,000 (which again is continually being increased by CPI) as a result of this reduction in tax deductible superannuation contributions.
This is akin to saying to a young adult if you save hard enough one day you will save enough money to buy a house without borrowing. That is not going to happen particularly in the major capital cities of Australia.
Enough negativity, one strategy you can consider to boost your superannuation, if you have cash or shares outside of your superannuation, is to consider making a non-concessional contribution of cash or an In Specie super contribution of shares into your superannuation fund. Please note you will need a self-managed superannuation fund to make the In Specie contribution.
Here is how an In Specie superannuation contribution works. If you have a share portfolio in your name you can consider transferring those shares into your self-managed superannuation fund. That is, the superannuation fund, assuming the superannuation deed permits, is allowed to accept contributions In Specie, under certain circumstances, and one of these circumstances is if the contribution is listed shares and the share portfolio balance being transferred to the superannuation fund does not exceed the non-concessional threshold.
The benefit of this strategy is that prior to 30 June 2017 you can make non-concessional contributions per member of $540,000 (being the maximum non-concessional contribution of $180,000 prior to 1 July 2017 plus two years in advance), but after 30 June 2017 this amount will be reduced to $300,000 (being $100,000 plus two years in advance).
By utilizing this strategy, if you hold these shares until you are aged 60, in your superannuation fund, there is the potential to have zero Capital Gains Tax from the date that they were transferred into the superannuation fund and the date when you eventually sell the shares in your retirement. However, if these investments are left outside of superannuation, the capital gains will be included in your assessable income and will be taxed at your applicable tax rate.
Prior to adopting or implementing this strategy it is important to calculate the capital gain on the market value of the shares at the date of the transfer.
This strategy tends to work best for people who own a portfolio of shares that have not increased greatly in value since their date of purchase and they intend to hold onto these shares at least until such time as they retire.
You need to do the maths but it is a strategy certainly worth exploring.
Should you have any queries in relation to In Specie transfers please feel free to contact
Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.
The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.