VARIOUS tax concessions apply to encourage people to save for retirement. These affect the treatment of income earned by super funds in the accumulation phase and when a super fund is in pension phase.
Q How much tax do you pay on gains when selling shares in your self-managed super fund, and how long do you have to keep them before selling?
A When a super fund sells shares that it has owned for less than 12 months, tax is paid at 15 per cent on the total profit. Shares owned for 12 months or more have the profit discounted by a third, resulting in tax being paid at 10 per cent. If a super fund is paying a pension at the time the shares are sold, no tax is payable on the profit.
Q I am 63, retired and have nothing in super, but about $600,000 in CBA shares. My wife is still working. If I transfer my shares to a SMSF, will I avoid a capital gains tax bill rather than if I sold them and bought them back through the fund? Is it acceptable for a SMSF to have shares in only one company and is it possible to set up a SMSF with only one member?
A Transferring shares will only save brokerage fees; it will not avoid paying tax on any capital gain. By transferring the shares to a SMSF, there is a change in ownership and therefore a sale for tax purposes.
The impact of tax can be reduced by classing some the value of the shares transferred as a tax-deductible self-employed super contribution. You will not be able to transfer your shares in one transaction as you would breach the contribution limits. You can set up a SMSF with only one member if you form a company to act as trustee for the fund. In this case you would be the only shareholder and director of the company.
An alternative would be to set up a SMSF with you and your wife as members and trustees. That fund could have only one investment, the CBA shares, as long as the investment policy of the fund allowed it.
Q I have an SMSF with a large share portfolio. Many of the shares were bought years ago and I paid higher entry prices than present values. Can I selectively sell on market those shares and then buy them back at present prices? My thinking is the buy/sell transaction won't cost much but I will crystallise taxation losses that can be used to offset against future capital gains.
A What you have described is known as a wash sale transaction. The ATO issued a taxpayer alert in April 2008 stating that they would attack this practice under Part IVA of the Income Tax Act. This section of the act allows the ATO to attack anything done where the sole or dominant purpose is to gain a tax benefit. If Part IVA is applied, tax penalties of 50 per cent of the tax avoided are imposed.
If you as trustee of the SMSF regularly reviewed the shares held by the fund and, as part of that review, sold under-performing shares and purchased new shares, the provisions of Part IVA should not apply.
As long as the shares are being sold for investment reasons based on analysis of the companies and not the crystallisation of capital losses, you should not be caught by the provisions of Part IVA.
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