Perpetual's Superannuation Opportunity

The case studies below show a financial adviser’s recommendation that makes the most of the current super environment. Not everyone will be able to contribute the illustrated amount, however the case studies use these figures to demonstrate what is possible.

Pre-retirees – Joan, age 57, high income earner

As Joan is under age 65, she can utilise the new $450,000 cap.

Strategy: to stay within the $100,000 pa concessional transitional contribution cap from 1 July 2007 to 30 June 2012, Joan must reduce her current concessional contributions to $100,000 pa (including 9% Super Guarantee plus salary sacrifice) from the previous age-based limit of $105,113. Table 2 outlines Joan’s contributions over a four-year period.

Table 2 – Joan’s contributions over a four-year period

Result: If Joan had not adhered to the new $100,000 cap, she would have been subject to a maximum tax rate of 46.5% on any excess above the concessional transitional contribution cap (which would be $2,325). She has also maximised her after-tax contributions into super by using the $450,000 cap in years 1 and 4.

Semi-retirees – James, age 59, and Kathryn, 54

James and Kathryn are semi-retired and want to make the most of the current super opportunities.

James and Kathryn now work casually earning $5,600 and $18,500 pa respectively. They are quite comfortable living on an after-tax income of $59,210 pa which includes their casual work, rental income, interest and imputation credits (James and Kathryn’s assets are detailed in Table 3).

Table 3 – James and Kathryn’s assets

*including $200,000 capital gain

Strategy: James and Kathryn had talked about selling James’ investment property, but were concerned about the tax bill on an anticipated capital gain of $200,000. To minimise this tax impact, James sells his investment property for $675,000 and contributes the proceeds into super:

– $225,000 is put into James’ super account (split into $100,000 as the maximum concessional contribution allowed pa as an eligible person and the remainder, $125,000, as an after-tax contribution)

– $450,000 is put into Kathryn’s super account as an after-tax contribution.

The expected Capital Gains Tax (CGT) of $200,000 was discounted by 50% to $100,000 as the property had been held for more than 12 months. As less than 10% of James’ annual income is related to employment, he can claim a tax deduction up to the maximum concessional contribution cap of $100,000.

James pays less tax by putting the proceeds of the sale into super (refer to table 4).

Table 4 – James and Kathryn’s DIY super funds

In the current financial year, Kathryn is eligible to claim a Government co-contribution of $1,100 as more than 10% of her income is related to employment. Refer to Table 4 above. The following financial year James can withdraw $100,000 from their joint bank account and contribute it into his super account as an after-tax contribution.

Result: James and Kathryn significantly increase their super balances and still meet their income needs by commencing a tax-free income stream in James’ name. Smart planning reduces their CGT and personal income tax while maximising the current super opportunities. James and Kathryn are in a good position to take advantage of the new ‘Better Super’ system.

Retirees – Barry, age 62

Barry has already commenced a pension, but he has investment assets that he can now transfer into super so he can take advantage of the tax free environment and increase his pension payments. He can re-open a super account to accept further contributions.

Strategy: After receiving financial advice Barry decided to take advantage of the ‘Million Dollar’ opportunity and invested $1 million into super before 30 June 2007. Barry then decides to contribute $150,000 pa as he wants to use the $450,000 limit in Year 4 prior to reaching age 65, as once he reaches age 65, he is unable to contribute to super as he has retired (see Table 5 below).

Table 5 – Barry’s contributions over a four-year period

Result: This smart planning by making the $450,000 contribution in Year 4 avoids Barry having to satisfy the work test over age 65 in the two years after the contribution.