Ask The Guru A Question
Question: Every 3 years I ensure that I make a small income. In that year I liquidate part of my assets and pay little CGT. I then contribute the money into my super fund. I just follow my accountant’s advice. I can only do this because my Family Trust can stream CGT to one beneficiary and normal income to another beneficiary. Can I still stream with the new laws? Also do I still get tax deductions for my super contributions?
Answer: Many business owners reach a stage in their life where they want to squirrel money into their super. Why wouldn’t you? It is the best legal tax haven available. Subdivision 290-C Income Tax Assessment Act 1997 (290-C) allows you to claim a tax deduction for your personal superannuation contributions, but only if:
1. You earn at least $1 from wages or salary from working or holding an office (if you don’t earn any wages or salary then you can’t do this)
2. Your wages or salary is less than 10% of your assessable income for the year (eg you earn $38k in salary and made a capital gain of $400k from the selling a property
The ATO don’t like the concession as only rich smart people with clever accountants ever seem to claim the deduction. Therefore, the ATO put up unfair restrictions to try and stop what your elected government has told you, you are allowed to do.
How do you take advantage of 290-C?
The usual ‘con’ (as the ATO seems to treat it) goes something like this:
You run a business through your family trust;
You also hold capital appreciating assets in your family trust
Most years, you get paid a salary or wage for working in the business (say, $200k);
Your trust sells a property that it no longer wants (say the capital gain is $300k);
The year you flog the property, you only pay yourself a low wage (say $28k);
You contribute a large chunk of the capital gain ($300k – 50% discount = $150k) to your self-managed superannuation fund ($150k); and
Instead of adding $150k to your taxable income, you contribute the $150k into your super fund. Thus, your taxable income for the year is just $28k.