As you approach retirement, you may begin to consider streamlining your investments to prepare for your financial future. For some people, this could include selling investments such as shares or property.
However, if you do consider selling assets, you need to consider the impact that this will have on your overall financial situation. We strongly recommend you speak to your accountant or financial adviser before you take action or make changes to your situation.
Capital Gains Tax
One of the things you might need to consider before you sell assets is capital gains tax. When you sell an asset for a greater price than you bought it for, this is a capital gain. You will typically need to report the profit (or some of the profit, depending on your situation) as part of your income for tax purposes.
So your tax bill may be higher than it would be if you hadn’t sold the asset.
Making a contribution to your super and claiming it as a tax-deductible contribution could reduce your taxable income, along with boosting your super balance. This is known as a personal deductible contribution. You must meet the work test if you want to make personal deductible contributions and you’re aged 67-75. You can read more about the work test on the ATO’s website.
Concessional contribution cap
If you do choose to make a personal deductible contribution, you need to know that this type of contribution counts towards your concessional contribution cap. In 2023-24 the annual concessional contribution cap is $27,500.
The concessional contribution cap also includes the contributions your employer makes for you (including the contribution they make towards covering your admin fees) and any contributions you make in salary sacrifice contributions. You can find out how you are tracking against the annual concessional contribution cap for this year in the secure area on the website.
If you want to contribute more than $27,500 in concessional contributions this year, there may be circumstances where this is possible. There is a provision that could allow you to use space in the concessional contribution cap that you haven’t used in previous years. There are conditions that apply to being able to do this, including that your super balance needs to be below $500,000 on 30 June in the previous financial year.
Example
For example, Sally had a super balance of $220,000 at last 30 June, so she was safely under the $500,000 limit that allows her to use previous years’ caps.
This year (2023-24)
Her concessional contributions for this year total $15,000. This is $10,000 from her employer and $5,000 she made in salary sacrifice contributions. It means that she still has $12,500 of space before she exceeds the $27,500 cap for this year. She’s since left her job, so she isn’t anticipating receiving any more in concessional contributions from her employer this year.
Last year (2022-23)
Her concessional contributions received for last year totalled $10,000 (which was only employer contributions). This means she did not reach the cap for that year (which was also $27,500 for that year).
Space in the caps
In Sally’s case, it means that along with the amount she still has in her cap for this year, she could also use the $17,500 of space that she didn’t use up last year (that is, last year’s $27,500 cap minus her employer contributions last year of $10,000 = $17,500 space from last year).
Sally chooses to make a personal deductible contribution this year to her super of $30,000. This is the $12,500 space she has in this year’s concessional contribution cap plus the $17,500 space in last year’s cap that she didn’t use.
How much can you use?
If your super balance at 30 June last year was under $500,000, you could choose to use the space in your previous years’ concessional caps for up to the previous 5 financial years. The oldest unused cap amounts are carried forward first. So, in our example above, if Sally had space in her concessional cap from an earlier year than 2022-23, the unused cap amount would be taken from that year first.
You can see your carry-forward contribution amounts from previous years on the ATO online services. Click Super > Information > Carry forward concessional contributions.
The unused cap amounts expire after 5 years. For example, an unused cap from 2018-19 that is not used by the end of 2023-24 will expire and can’t be used.
The annual concessional cap from 1 July 2017 to 30 June 2021 was $25,000. The annual concessional cap from 1 July 2021 is $27,500.
You can watch our video about the concessional contribution cap to learn more about using previous years’ concessional contribution cap space. See our Contributions webpage for more.
Warnings
If you do choose to make a personal deductible super contribution, you need to make sure you aren’t doing it just to avoid paying tax. There can be serious penalties if you do this.
We strongly recommend that you speak to your accountant or financial adviser before you make changes to your super or financial situation.