{"id":6710,"date":"2022-10-11T05:02:52","date_gmt":"2022-10-11T05:02:52","guid":{"rendered":"https:\/\/www.tagfinancial.com.au\/blog\/?p=6710"},"modified":"2022-10-11T22:49:21","modified_gmt":"2022-10-11T22:49:21","slug":"in-specie-transfer-of-assets","status":"publish","type":"post","link":"https:\/\/www.tagfinancial.com.au\/blog\/in-specie-transfer-of-assets\/","title":{"rendered":"In-Specie Transfer of Assets \u2013 an example"},"content":{"rendered":"

Author: Michelle Griffiths, Partner, TAG Financial Services<\/em><\/p>\n

In many instances in the lead up to retirement, it is worthwhile considering what assets your clients hold outside superannuation and determine whether it would be worthwhile transferring these into superannuation, where they may be in a much more tax effective environment.<\/p>\n

Example \u2013 David & Elise<\/strong><\/span><\/p>\n

David is self-employed and semi-retired at the age of 60 earning approximately $120,000 p.a. His wife Elise is 59 years of age and stopped working a few years ago. They have a Family Trust (\u201cFT\u201d) that owns various shares to the value of $1,130,000. The capital gain if they were to transfer the maximum value of shares ($660,000) into the Super Fund would be $180,000.<\/p>\n

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In a normal year without the CGT implications above, David and Elise would have tax to pay of approximately $24,234 between them.<\/p>\n

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We could potentially reduce the capital gains tax cost to David and Elise by $21,855 by claiming a tax deduction for some of the amount that is going into superannuation and therefore limit the tax cost of this transfer as follows:<\/p>\n

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*\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 For Elise we were able to increase the amount of superannuation claimed by using the Carry Forward rules \u2013 as her balance in super was under $500,000 and she had not made any concessional contributions in the previous two years.<\/em><\/span><\/p>\n

Therefore, the total additional tax paid due to the transfer of the shares into superannuation was $2,645, partly because we were able to use some of the superannuation contributions to reduce David\u2019s Personal Services Income as well.<\/strong><\/p>\n

By having these shares held in superannuation for David and Elise this will initially save approximately $1,742 per annum (the difference Elise\u2019s marginal tax rates and the 15% tax rate paid by the superannuation fund on the grossed-up dividend income).<\/p>\n

On this basis, it would take around 1.5 years<\/strong> of the tax savings due to \u201cpay for\u201d the upfront tax cost associated with the transfer.<\/p>\n

Further to this \u2013 once David is retired, we could also commence to pay a pension to him and Elise which would be largely tax-free (as there is such a high tax-free component).\u00a0 This would mean that the super fund earnings would be tax-free and would therefore create an additional tax saving of approximately $4,300 per annum.\u00a0 If this were the case, the tax savings would meet the initial tax costs within the first year and therefore would be an even more attractive option.<\/p>\n

Other options for David and Elise?<\/strong><\/span><\/p>\n

There may be additional ways to reduce the initial cost of this transfer: including:<\/p>\n