Finally, we have witnessed an increase in both concessional and non concessional contributions into super commencing 2014/2015 year.

The amount of concessional contributions that may be made by a member to their SMSF has increase 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.

The three year bring-forward caps also has had an increase for 14/15 financial year.

So, persons aged under 65 in any financial year may bring forward two years’ worth of entitlement to make non-concessional contributions, effectively making three years’ worth of non-concessional contributions in a single financial year.

The new caps, an SMSF member may, in a simple scenario, 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).

 

How will this benefit in transferring a tax-effective property into an SMSF?

The now allowable contributions are up to $100,000 greater than those that were available in the previous financial year. This is great news for SMSF members who own commercial property and may be seeking to contribute all or part of their real property holdings into their SMSF’s as a superannuation contribution.

 

What about stamp duty?

Depending on what state you reside in, stamp duty laws provide exemptions from stamp duty for the transfer of property interest into an SMSF, where the transfer is made as a superannuation contribution. Seek advice in this area as 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.

 

Let’s have a look at an example

Take an example of a person in their early 60’s who owns a commercial property valued at $1million and wishes to transfer that property into their SMSF. To effect this, the person proposes to

–      Transfer a 21.5% interest in the property to their SMSF prior to 30.06.2015 – being a contribution of $215,000 ($35,000 concessional, $180,000 non-concessional)
–      Transfer an additional 21.5% interest prior to 30.06.2016 – being a further contribution of $215,000 ($35,000 concessional, $180,000 non-concessional) and
–      Transfer the balance (57% interest) prior to 30.06.2017 – being a final contribution of $570,000 ($30,000 concessional and a bring-forward non-concessional contribution of $540,000).

The above example would generally result in a full stamp duty exemption and would not trigger any excess contributions tax (provided no cash or other property contributions have been made in any of the financial years).

 

Capital Gains Tax?

The above is a great tax effective strategy of transferring a commercial property into your SMSF. However, you should be mindful of the transfer may trigger capital gains tax or will cease the CGT-free status enjoyed by the property.

Let’s not forget that it is very important that only certain types of properties can be transferred into a SMSF. The property being transferred must meet the definition of a “business real property”. In other words, the property must be used for genuine business purposes. Residential property cannot be transferred into an SMSF.

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David Watkins, has been providing advice to clients since 1987. He is a Certified Financial Planner, a member of the Financial Planning Association (FPA), and Superannuation Professionals Association of Australia (SPAA).Google Plus

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