Nick Bruining: This superannuation carry-over hack can help you make the most of an investment property sale

If your plans for 2025 include offloading an investment property that’s surged in value or another asset that’s made good money, there’s a nifty way of reducing the capital gains tax bill. In some cases, it could provide you with a $142,500 tax deduction later next year. Contrary to normal investment advice, however, in this case timing is everything. It all makes use of special superannuation contribution rules which allow you to carry over up to five years of unused concessional super contributions. Those are where someone is gaining a tax concession, which is another way of saying it is tax-deductible. Your employer’s compulsory contributions are tax-deductible, as are salary-sacrificed contributions you make. Personal deductions where you claim a tax deduction are also classified as concessional. All taxpayers are allowed annual superannuation contribution limits called caps. When the cap system started in 2018, the maximum concessional contribution was $25,000. It increases in $2500 increments when wage increases exceed certain levels. This happened in 2021 to lift the cap to $27,500, and again in 2024. Right now, it is $30,000. The carry-over rule allows you to make use of the unused amounts from previous years. If we think ahead to July 1 next year, we would have $30,000 for the new financial year and this year, plus three lots of $27,500 covering five years. That means if there have been no concessional contributions to your super up until July 1 2025, you can potentially dump in $142,500 as a single tax-deductible contribution to super. That $142,500 figure will be reduced by any other concessional contribution made over the period. If you’re an employee, that includes your employer’s compulsory super payments. There’s one other box to be ticked in order to use the carry-over rules and it could present a problem, but there’s a fix. Your total super balance on June 30 in the financial year prior to making the contribution must have been less than $500,000. If it’s over that, you can’t use the rule, and you only have the $30,000 general cap to play with. TSB includes the total amount in accumulation and pension phase. Let’s say your TSB is sitting at about $520,000. You plan to sell your investment property next year and your accountant tells you that sale will add $150,000 to your income. Ouch. If you withdraw $30,000 from super before June 30 2025, your TSB will, hopefully, be about $490,000. You now tick the box to be able to make use of the carry-over rules. Early in the new financial year, you deposit the money back into super using the other type of contribution — a non-concessional contribution. That puts you back to the same position, except we now have the June 30 balance under the $500,000 TSB level established. Be very careful of overdoing things here. You potentially risk running foul of the infamous Part 4a of the Tax Act. That is a kind of catch-all anti-avoidance measure that allows the Australian Taxation Office to look at an overall strategy if its sole purpose is to avoid tax, but not to minimise it. The sale contract for the investment property needs to be signed in the new financial year. That’s important because, for ATO purposes, that’s the sale date, not the day you get the cash. You are then in a position to dump as much of the proceeds into super as you need to as a concessional contribution. The objective here is to maximise the deduction while staying within the carry-over cap limit. Depending on your other income, the concessional contribution will attract a contributions tax of at least 15 per cent, and possibly 30 per cent. This is deducted by the super fund and sent to the ATO. The higher rate applies if your adjusted taxable income goes over $250,000 — and that could be triggered by your good fortune with the profits of the property sale being added to your other income for the year. In any event at 30 per cent, you’re still better off than the 47 per cent tax, including the Medicare levy, you would have otherwise paid. Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association