How you can shelter $137,500 of capital gains in one super move

Hi Nicole, I have spent almost all of my super in the 10 years since I retired. I’m now about to turn 74. I have an investment property that I really have no choice but to sell as the income it earns me is not enough to live on while its value has increased significantly (but that also raises the issue of capital gains tax). Can I sell this asset and somehow get the proceeds into super, for the massive tax benefits in there? What are the rules and restrictions, and how soon would I have to do it? Cheers, Jeff

It’s a good thing you wrote, Jeff, you are running out of time for this strategy. Firstly, yes, you can sell and get a big chunk of the proceeds into super. But you need to do so carefully and quickly.

If you’re looking to put the proceeds of an investment property into super, you can, but you’ll need to act fast.Credit: AFR

Now, you don’t say what kind of profit you may make, but given property price increases, let’s say you bought it for $200,000 and might sell for $700,000, netting you a $500,000 capital gain (note there will be expenses to add into the cost base and cut this a bit).

Assuming you have held the property for longer than one year, the 50 per cent capital gains tax discount will apply and the gain that would be added to your assessable income, therefore $250,000. You would usually pay tax on this amount at your marginal rate.

But the real beauty of the superannuation strategy you suggest is you can cut this gain further. By making what is called a personal deductible contribution into super, the gain comes down by the identical amount.

Usually, these deductible contributions are capped at $30,000 a year (this tax year), however, provided your super balance was under $500,000 at the end of last tax year, there is a much larger opportunity.

You only have until 28 days after the end of the month you turn 75 to be able to shelter any money – and gains – into super

What you can do is “mop up” five previous years of unused concessional (before tax) contribution allowances via what’s called a carry-forward provision.

And these five years of allowances total $137,500 ($30,000 for the 2024-25 tax year, plus $27,500 for the previous three years, plus another $25,000 for the one before that).

Note that these concessional contribution allowances include any employer Superannuation Guarantee contributions and all salary sacrifice ones. Have you – having retired – made none though?

Provided this is the case, of your $250,000 hypothetical property profit, you could minus $137,500 and play it so that you only pay tax on the balance: $112,500.

The remainder will also be well within the annual non-concessional (after tax) contribution limit you can pay in, which is $120,000. (And if, in reality, there is more money remaining, under age 75 you can make three times this contribution in one year under the ‘bring-forward arrangement’.)

Going back to the $137,500 in potential carry-forward contributions, you convert what would be otherwise an after-tax super contribution to a before-tax one, that is deductible, by filling out what’s called an “intent to claim form” on your super fund’s website.

This can be done after the end of the tax year when you submit your tax return – no hurry. But for the contribution itself there certainly is a hurry – the same tax year is vital.

That means you need to think about whether you try and list your property, sign a contract (the crucial date for a capital gains tax event) and settle and submit the money to your super fund all comfortably before June 30 and what’s left of this tax year. You should make the contribution at least two weeks before the end of the tax year to allow adequate time for processing.

Alternatively, is it more realistic to aim for a contract of sale after the beginning of next tax year, allowing yourself a little more time to get the money and make that all-important super contribution?

Just be aware that there is another time constraint: you only have until 28 days after the end of the month you turn 75 to be able to shelter any money – and gains – into super. So, only almost nine months of next financial year, given your February birthdate.

And there’s one final caveat: you need to get some kind of job in whichever tax year you choose. The work test is not onerous. You have to be gainfully employed for just 40 hours over 30 consecutive days in it somewhere.

But regardless, it’s vital to being able to make a personal deductible contribution. Good luck.

Nicole Pedersen-McKinnon is author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, X and Instagram.

• Advice given is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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