Reducing Capital Gains Tax by making personal concessional contributions to your superfund.
If you are an individual and either:
- make a capital gain on an asset; or
- receive a distribution of a capital gain
you will pay tax on that gain at your marginal rate – as high as 47% for those whose taxable income (including gains) exceeds $180,000.
One way to minimise the tax impact of a capital gain is by making additional concessional (tax deductible) super contributions to your superfund. Under the super contribution rules, you may be eligible to claim personal superannuation contributions made to your fund, using either:
- Additional concessional contributions for 2021 – these are voluntary contributions in excess of contributions paid by your employer and any salary sacrificed amounts. You can only contribute deductible contributions up to the maximum cap of $25,000 for 2021;
- Unused contribution cap amounts from 2020 and 2019 – the maximum cap for these years was also $25,000. If you earned a salary of $90,000 for both 2019 and 2020, your employer would have contributed $8,550 each year ($90,000 x 9.5%) to your fund. That means your unused cap each year is $16,450 ($25,000 less $8,550) or $32,900 in total. You can claim a deduction for contributions made this year that are in relation to the unused amounts from prior years.
Example:
Assuming a $90,000 salary again in 2021, an individual who makes or receives a taxable capital gain of say $100,000 could reduce their taxable income and tax as follows:
No super contributions
| Salary |
$90,000 |
| Taxable capital gain |
$100,000 |
| Taxable Income |
$190,000 |
| Tax on taxable income |
$59,967 |
| Less: Tax withheld |
-$21,528 |
| Personal income tax payable |
$38,439 |
| Division 293 tax for high income earners |
$1,282 |
| Total combined tax paid |
$39,721 |
Using super contributions
| Salary |
$90,000 |
| Taxable capital gain |
$100,000 |
| Less: 2021 super top up |
-$16,450 |
| Less: 2020 unused cap |
-$16,450 |
| Less: 2019 unused cap |
-$16,450 |
| Taxable Income |
$140,650 |
| Tax on taxable income |
$39,920 |
| Less: Tax withheld |
-$21,528 |
| Personal income tax payable |
$18,392 |
| Tax on contributions in the fund x 15% |
$7,402 |
| Total combined tax paid |
$25,794 |
Tax saved equals $13,927.
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances
