# Putting share profits into superannuation to reduce tax



## Aurora (13 April 2011)

Hi, my apologies if this is not in the correct area or has been asked before (I did try the search engine!)

My wife and I have very recently sold some shares on the ASX that we held for a number of years and made a *very substantial *profit - in fact enough to now pay off our mortgage.

Now that we have the money in our hand everyone has an opinion on what we should do.  We are currently a single income family (wife on maternity leave) with four young children.  Household income is between $60K-$80K per annum.

Originally our goal with these shares was just to sit it out and wait to have enough to pay off the house.  We've spoken to two accountants about what is best for us with a family noting that the share profit will wipe out our family tax benefits (family allowance thing) for this financial year.  We've been presented with two scenarios:

Accountant One said we should not pay off our house and put the bulk of the money into superannuation to avoid paying tax on the profit.  By doing so, he also claims our family tax benefits won't be affected as the profit we made won't be counted as income.

Accountant Two has said you can't do this with profit from shares (or income from rental properties) and we will still be taxed on it and we are better off paying off the house.

I can see the merit in Accountant One's methods, but part of me wonders whether locking money away in super (that is still 30+ years away) for the sake of saving a tax payment and losing a year's family tax benefit is not worth the losing the "I just paid off my house" mindset.  Does that make sense?

I am seeking opinions of anyone with knowledge or experience in this area.  Which accountant is on the right track here?  What (in your humble opinion) would you do?


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## qldfrog (13 April 2011)

Not really aware of your circumstance but it is pretty hard to beat the "paying your mortgage off"
morgage at 7.5% or around, if taxed at max rate (you might be or not) you need to get a 13 or 14% return after tax to beat this; and your morgage repayment is risk free, with ongoing benefit years after years;

money in your super can vanishes after fees, inflation and crashes;
investment in the share market in japan were still negative after 20 years...
In my opinion, I would not hesitate;

just make sure you keep money aside to pay any capital gain tax but based on your description(ie long term investment), you will only pay tax on 50% of CG so should not be too bad
And contribution to super when young are quite limited as well.
Do your own research obviously


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## ROE (13 April 2011)

I don't think you can get away with paying capital gain tax once the share is sold.

Putting into super does not matter, since labor came to power extra money put into super they taken that as an income as well and will use that to calculate your family tax benefit.
(stop the rich from claiming centrelink benefits while dumping cash into super)

I double check with ATO but I dont think the accountant advising putting money into super helps and also if you are under 50 the maximum limit is 25K anyway for super any dollar after 25K Tax man will penalise you..
(again to stop high income earner dumping cash into super and pay 15% tax)


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## Julia (13 April 2011)

ROE said:


> I double check with ATO but I dont think the accountant advising putting money into super helps and also if you are under 50 the maximum limit is 25K anyway for super any dollar after 25K Tax man will penalise you..
> (again to stop high income earner dumping cash into super and pay 15% tax)



Agree with ROE.  Phone the ATO and clarify your tax situation before making a decision.
If no penalties result, I'd personally go for paying off the mortgage.  This is not advice, yada yada.


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## So_Cynical (13 April 2011)

Its a capital gain so you will pay tax...i very much doubt putting it straight into super will somehow void the capital gain...i think accountant one is an idiot and is probably better suited to a career shearing sheep.

(disclaimer: not advise, im uneducated and get all my info via the internet)


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## jbocker (14 April 2011)

Firstly well done Auroa! What a great decision you have to make. With respect to Super there are limits pre and post tax, as previously pointed out, I understand there is a 25K limit pre-tax, and I dont have any idea if it can be calculated pre-CGT. If you cannot, you could make up for that by salary sacrificing pre tax from your (or her) wage as an alternative. Paying off your home is great as it reduces non taxable debt (ie the home loan interest), but there are other things that are better to pay off first like credit cards, personal / car loans etc (higher interest).
Paying off the home loan can be done without early payout penalties too, have a look at your contract.
Just be careful not to overdo any spending on crap, everything becomes soooo affordable when you have a bucket of money, so make the decision soon and enjoy it.
With your debts paid off, you would be in an excellent position to save/invest money by putting away what you would have spent on a mortgage.

I like the idea that you and your wife sold the shares, and I trust you are saying they are in both names and can enjoy a tax free threshold for one of you.
Like everyone else here this is not advice...

Well done and good luck.


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## Reasons (14 April 2011)

Aurora said:


> My wife and I have very recently sold some shares on the ASX that we held for a number of years and made a *very substantial *profit - in fact enough to now pay off our mortgage. Now that we have the money in our hand everyone has an opinion on what we should do.  We are currently a single income family (wife on maternity leave) with four young children.  Household income is between $60K-$80K per annum.




I am not an accountant so the following are only suggestions for you to go and do further research on.

The catch is that as you have already sold, how much had you planned to legally minimise any tax prior to the sale?

 If the shares are in your partner’s name and your partner has not made any money this financial year, you are likely in the best position. 50% of any capital gains are tax free. You then pay tax at whatever tax rate applies to the other 50% as this is your partner’s total income. 

If it is in both names then the above applies to both of you equally, in other words the 50% capital gains taxed component is split equally between both of you. That means it could take you into new tax brackets whether you like it or not if you are the main bread winner. One way to minimise tax could be to salary sacrifice into Super – not your capital gains though. It might be that you are taken into the next tax bracket and by sacrificing a small amount you lose very little in real terms because it would have otherwise been taxed away from you. It performs a useful task going forward in Super and the ATO is legally denied your cash. Even if it is only $500, it is better in your pocket than the ATO. You are rapidly running out of financial year and need to go ask questions quickly of your accountant.

Out of interest, this is why people use Trusts for assets. The proceeds from sales can be distributed legally in whatever percentages you like to any or all trust members to minimise tax at the time of sale depending on the individual circumstances. I read all sorts naÃ¯ve stuff in threads here and elsewhere how trusts are a tax rort and are about tax avoidance. The Tax Act is designed for any Australian to legally minimise tax and is what every financially literate person does. Tax avoidance is illegal and is what the nuffies do until caught. Whenever you buy an asset, think ahead about how it might need to be legally protected or isolated from your other assets and what tax benefits it might provide to you in the future.



Aurora said:


> Originally our goal with these shares was just to sit it out and wait to have enough to pay off the house.  We've spoken to two accountants about what is best for us with a family noting that the share profit will wipe out our family tax benefits (family allowance thing) for this financial year.  We've been presented with two scenarios:




From what I know about Family Benefits, the rule changes under Labor means that any income will be deemed for taxation purposes including anything sacrificed into Super and therefore you are very likely to have your Benefits affected for this financial year and likely have to pay some/all back so ensure you find out your liabilities here before using up all cash. Under the Libs any salary sacrifices into Super were not deemed as income and if you knew the rules you could do some mind boggling tax minimisation as a PAYE.



Aurora said:


> Accountant One said we should not pay off our house and put the bulk of the money into superannuation to avoid paying tax on the profit.  By doing so, he also claims our family tax benefits won't be affected as the profit we made won't be counted as income.




This one is highly likely to be proved wrong on both points. Not an accountant I would use and you probably should never ask them anything again IMO (except if you want to do some really shonky tax avoidance stuff at some point, prior to your gaol stint)



Aurora said:


> I can see the merit in Accountant One's methods, but part of me wonders whether locking money away in super (that is still 30+ years away) for the sake of saving a tax payment and losing a year's family tax benefit is not worth the losing the "I just paid off my house" mindset.  Does that make sense?




Yep, and talking about locking things away – remember never to drop the soap whilst you are in there - and your kids will miss you 



Aurora said:


> Accountant Two has said you can't do this with profit from shares (or income from rental properties) and we will still be taxed on it and we are better off paying off the house.




And they are very likely right. Go see this one ASAP and get them to minimise your tax as low as they can and to get your head straight about Family Benefits for this financial year as they are likely already blown. Remember this when dealing with accountants… never ask them IF you can do something, always ask them HOW you can do something. The former often gets you a no answer; the latter usually gets you a solution.

Hope that helps.


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## Aurora (14 April 2011)

Thanks everyone for your thoughts on this.  After several phone calls and being switched through to department after department after department of the ATO I finally got someone who really knew their stuff.  They have confirmed my hunch, and what most of you had said - Accountant one needs to be knocked on the head!

The ATO said there is basically no way to reduce the CGT without having a capital loss to offset it with.  That's kinda what we had planned for anyway so it doesn't come as much of a surprise.

With regard to Family Tax Benefits, they also confirmed any capital gain is added to your assessable income when determining your eligibility for the Family Tax Benefit.

Again we anticipated this also and stopped Family Tax Benefit payments about two months ago when we saw things were moving with the shares.

I guess all that remains is tomorrow morning the bank pushes a button and pays out the mortgage and we will be 100% debt free!

Incidentally if any has any ideas of what could have been done, or how you would have planned for this, we would greatly appreciate any thoughts.  As I said in my earlier post, we were never in this to do anything other than pay off the house, and we know nothing about financing and getting the most of your money and stuff like that, but if we were to look at investing again we probably have the time and opportunity to plan ahead a little more.

Thank you all so very much for your comments  _(and thank you LYC for paying off our house!!)_


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## Reasons (14 April 2011)

Aurora said:


> I guess all that remains is tomorrow morning the bank pushes a button and pays out the mortgage and we will be 100% debt free!




Yup - that will definitely ensure you pay the maximum amount possible to the ATO and minimise your gains.



Aurora said:


> Incidentally if any has any ideas of what could have been done, or how you would have planned for this, we would greatly appreciate any thoughts.  As I said in my earlier post, we were never in this to do anything other than pay off the house, and we know nothing about financing and getting the most of your money and stuff like that, but if we were to look at investing again we probably have the time and opportunity to plan ahead a little more.




As I indicated previously, you MIGHT find that by salary sacrificing into Super that for a $20K sacrifice you only lose $5K in total in hand (an example ONLY - not fact) as you have reduced your tax obligations by stepping down a tax rung. Better in your pocket than the ATO.

It is not too late to fix your tax problem at some level unless you are adamant you want to pay the ATO as much as you possibly can by paying off your loan first. 

As others have indictated, you have not calculated your tax and Benefits liabilities and these should be quantified ASAP before paying off anything either.

As also indicated previously, go and pay an accountant ASAP to minimise your tax before you do anything else.


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## So_Cynical (14 April 2011)

Aurora said:


> Incidentally if any has any ideas of what could have been done, or how you would have planned for this, we would greatly appreciate any thoughts.  As I said in my earlier post, we were never in this to do anything other than pay off the house, and we know nothing about financing and getting the most of your money and stuff like that, but if we were to look at investing again we probably have the time and opportunity to plan ahead a little more.




The easy obvious thing to do would of been to spread the capital gain over 2 tax years...sell half the LYC shares this year and the rest after June 30, if nothing else would of eased the pain a little.


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## nulla nulla (15 April 2011)

Four children and one on the way, wife on materinty leave reduced to a single income, combined income (excluding capital gain on lyc) appriximately $60k-$80k, advised Centerlink to stop Family Alowance payments two months ago.

On the assumption that the substantial capital gain scenario from lyc is a one off, in my humble opinion, you should be planning ahead on the basis that your combined income will continue to be in the $60k-$80k range and that you will shortly have five children and most likely be on a single income.

With the ability to split the income from the capital gain on lyc (assuming the shares were in joint names) and the fact you held them for a couple of years, you will minimise the taxable component. 

Also Centerlink may want to be repaid some of the allowance for this fiscal year due to the change in your annual joint income, but that will not be determined until you do your tax returns. 

If/when Centerlink ask for the "overpayment" to be returned, talk to them about paying it back over time rather than in one hit. You should find them very reasonable to deal with. Also, on the basis that the capital gain from lyc is a one off, you may need to discuss with them the reinstatement of the family allowance entitlement (5 children, one income). 

If necessary, you may even be able to organise with them that the "overpayment" is repaid by way of deduction from the re-instated family allowance payments.


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## awg (15 April 2011)

With respect to the way Capital gains can be offset against a tax deduction for Family Payments.

I would not trust ATO, accountant or Centrelink general staff.

You can make an appointment with a Financial Information Service Officer at Centrelink, and they will be correct, and usually very helpful.

I think you will be out-of-luck

Every change to Welfare policy has the under-riding aim of saving a $


Can one still not contribute up to $450k non-deductible over 3 yrs?

This has major benefits at pension stage.


fwiw, I dont think I would be tying all or most of my assets up in super with the details you presented.

fwiw, I did, but my circs were different


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