Date issued: 31 May 2007

Investors should not get swept up in the rush to contribute $1 million to superannuation before the 1 July 2007 deadline as there are costs and risks of acting too hastily, warns CPA Australia.

In order to maximise personal superannuation contributions before the new contribution limits commence on 1 July 2007, many people are considering selling assets, such as property or shares, to free up cash, borrowing against existing assets, or transferring assets directly into their superannuation.

CPA Australia superannuation policy adviser, Michael Davison said that while time is running out to make that big contribution, individuals should not make an uninformed decision hastily.

‘Selling or transferring assets into super may trigger capital gains tax, stamp duty or other hidden costs. Also, only certain assets, such as listed securities and business real property, can generally be transferred into superannuation. And borrowing money has interest costs that will not be tax deductible, and also require other assets for security.

‘For these strategies to be worthwhile, likely returns within superannuation have to exceed the cost of making the contribution. Superannuation funds have enjoyed good returns over recent times but this may not last. If markets turn in the near future and low or negative returns are experienced, the cost may never be recovered, especially for those close to retirement, Mr Davison said.

From 1 July 2007, individuals can personally contribute $150,000 each year or up to $450,000 averaged over three years. This means a couple will still have the opportunity to make a combined contribution of up to $900,000 after the transitional limit has expired.

If contributions are timed over the end of a financial year, they could contribute up to $1.2 million together in a small period of time.

Mr Davison suggests broadening the focus beyond personal contributions.

‘Taxable, or concessional, contributions of up to $50,000 ($100,000 until 2012 if aged over 50) can also be made each year. Salary sacrifice, or deductible contributions if self employed, can be another way to maximise contributions tax effectively.

‘Younger people should note the $100,000 concessional contribution limit for over 50s expires in 2012.

Other opportunities exist as well, with low income earners being eligible for the government co-contribution and a rebate may be claimed for contributions to your spouse’s superannuation.

Low income earners can contribute as little as $20 per week and be eligible for the co-contribution of up to $1500. A rebate of up to $540 is also available for contributions made for a low-income earning spouse.

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