Beware of the traps when it comes to topping up your super

I’m 77 with $280,000 in an account-based pension of which 78 per cent is taxable if paid to non-dependants on my death and another $180,000 pension account where only 2 per cent is taxable on death. My wife is 73 with $1.2 million in her account-based pension. We also have $300,000 in savings accounts. We propose to start a new accumulation account in my wife’s name and contribute $110,000 this financial year, drawing funds from the savings accounts. Next financial, I plan to close my super account of $280,000 and deposit it into my wife’s accumulation account using the bring-forward rule, then convert this to an account-based pension where it will be mainly tax-free to non-dependants upon one’s death. As my wife will be 75 in June 2024, can she contribute that amount prior to turning 75, or is there a tapering off on contributions towards age 75?

For other readers, you are referring to the taxable component of a super fund, which comprises everything in a super fund except the fixed number of dollars that you contributed without claiming a tax deduction and known as the tax-free component.

Maximising your super late in life can have a few pitfalls to be wary of.Credit:Simon Letch

The tax-free component of a death benefit lump sum is always untaxed, whereas the taxable component is only untaxed if it passes to a financial dependent.

As long as your wife is under 75, she can make an annual after-tax or “non-concessional” contribution of up to $110,000 in 2022-23, or she can bring forward three years’ worth, i.e. $330,000 but then no more for the next two financial years.

However, beware of a couple of traps. For others, a non-concessional contribution must be either a personal one or one made by a spouse or employer. Otherwise it is taxed 15 per cent.

Also, you can only contribute the full $330,000 if your total super balance is below $1.48 million, measured at the previous June 30th. Above that level, the maximum bring forward amount begins to phase down. So if your wife has some $1.31 million in super come next June, again this should not affect you.

Just be sure to be nice to your wife.

My primary residence is currently rented out. I understand that it can be leased out for a period of six years without attracting capital gains tax. Can the renting period exceed six years if there are times of non-renting, due to gaps in getting a tenant? When returning to the primary residence after six years, is there a minimum period in which I have to live in the property before it can be leased out again for a further six years without attracting CGT?

Remember that you must first live in the house before moving out to claim the six-year period, during which you claim no other home as your main residence. Assuming you did this then, for CGT purposes, you must treat the house as though you bought it on the day you first used it to produce income.

When the house is not producing income, the exemption period is unlimited. For example, if you rent the house out for three years, leave it vacant for two years, then rent it out again for three years, all measured by the number of days, it meets the six-year rule and can be sold free of CGT.

But if your tenant moves out and you are advertising and looking for a new tenant within a week or two, that doesn’t quite fit the bill.

If you want to move back in and restart the six-year exemption, the ATO could look to see if you and your family live in it, your personal belongings are kept there, your mail is delivered there, it is your address on the electoral roll and utilities are connected in your name. While there is no fixed period to restart the six-year rule, you should live in the home for at least three to six months.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. All letters answered. Help lines: Australian Financial Complaints Authority, 1800 931 678; Centrelink pensions 13 23 00.

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