Converting property into super

Individuals can minimise capital gains tax (CGT) when selling an investment property where proceeds are contributed to superannuation.

Those who sell their property can contribute up to $500,000 as a non-concessional contribution into their superannuation, which means that no tax will be payable. Non-concessional contributions, or after-tax super contributions, are super contributions for which an individual hasn’t claimed a tax deduction.

However, since selling an investment property is a type of capital gains tax event (unless it was acquired before 20 September 1985), sellers will need to calculate their capital costs to add to the purchase price to establish the property’s cost base. The sales price minus the cost base will form their taxable portion.

Individuals who have owned the property for more than 12 months will receive a 50 per cent discount on the taxable portion. For properties owned in joint names, the taxable portion may again be cut in half. The remaining taxable portion is added to each owner’s taxable income for the financial year in which they exchanged contract.

To further reduce CGT, individuals should consider their eligibility to contribute up to $35,000 as a concessional contribution to super, as this can help lower a person’s taxable income by $35,000 a year and reduce their potential capital gains tax liabilities.

Individuals should keep in mind that proposed changes to Australia’s superannuation rules may affect this strategy since concessional contributions may decrease to only $25,000 a year.