The recent increase in super caps creates opportunities for strategic and tax-effective property transfers.
SMSF trustees and members should familiarise themselves with the indexed concessional and non-concessional superannuation contributions caps recently announced by the ATO for the financial year commencing 1 July 2014.
Contribution caps for 2014/2015 year
The amount of concessional contributions that may be made by a member to their SMSF has increased from $25,000 to $30,000, while the amount of non-concessional contributions that may be made has increased from $150,000 to $180,000. In addition, a higher concessional contribution cap previously applicable to persons aged 59 and over (being $35,000) will, from 1 July 2014, apply to persons aged 49 and over.
Persons aged under 65 in any financial year may bring forward two years’ worth of entitlements to make non-concessional contributions, effectively making three years’ worth of non-concessional contributions in a single financial year. As a result of the new caps, an SMSF member may, in a simple case, make total contributions of up to $570,000 in the 2014/2015 year without incurring any excess contributions tax (or $575,000 if the person is aged 49 to 64). However, the maximum contribution available in the 2014/2015 year will differ for any member who has exercised the bring forward rule in either of the previous two financial years, with their contribution entitlements limited by the existing caps and contributions already made.
Advantages available for strategic and tax-effective property transfers
The now allowable contributions are up to $100,000 greater than those that were available in the previous financial year. This is good news for SMSF members who own commercial property and may be seeking to contribute all or part of their real property holdings into their SMSFs as a superannuation contribution.
Stamp duty laws in most states and territories provide exemptions from stamp duty for the transfer of property interest into an SMSF, where the transfer is made as a superannuation contribution. The transfers need to be properly structured to enjoy the maximum stamp duty savings whilst at the same time ensuring that excess contribution tax is not inadvertently incurred.
Take an example of a person aged 63 who owns a commercial property valued at $1,000,000 and wishes to transfer that property into their SMSF. To effect this, the person proposes to:
(a) transfer a 21.5 per cent interest in the property to their SMSF prior to 30 June 2015 – being a contribution of $215,000 ($35,000 concessional, $180,000 non-concessional);
(b) transfer an additional 21.5 per cent interest prior to 30 June 2016 – being a further contribution of $215,000 ($35,000 concessional, $180,000 non-concessional); and
(c) transfer the balance (57 per cent interest) prior to 30 June 2017 – being a final contribution of $570,000 ($30,000 concessional, and a bring-forward non-concessional contribution of $540,000).
Couples that own property jointly can also adopt a similar strategy, benefitting from the ability to utilise their respective caps to contribute higher valued property interests into their SMSF jointly. The staggered transfer strategy would generally result in a full stamp duty exemption and would not trigger any excess contribution tax (provided no cash or other property contributions have been made in any of the financial years). The strategy can also be varied to allow for the transfer of property from a family trust to an SMSF in a stamp duty-exempt manner, provided the process is carefully structured to comply with stamp duty laws.
Matters to be mindful of when making superannuation contributions by property transfer
When devising strategies to make superannuation contributions by way of property transfer, there are a number of considerations members and trustees of SMSFs should be mindful of:
• the transfer will trigger capital gains tax or will cease any CGT-free status enjoyed by the property;
• as a related party transaction, transfers of property may only relate to property eligible to be acquired by an SMSF from a member – residential property cannot be transferred as an SMSF contribution; and
• property values may change over the period of proposed contributions, which may necessitate a variation in the strategy (a decrease in percentage of the property being transferred) to avoid the making of inadvertent excess contributions.
Biljana Apostolova, partner, Gadens, and Craig Gibson, associate, Gadens.
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