Noel Whittaker
Noel Whittaker

Slumps can be useful too

 As a general rule, you should never dump quality shares and managed funds when the market is going through one of its normal negative periods.  However, in certain cases it can be a clever thing to do if you wish to move assets from outside super to inside super and stay in the same asset class.

Suppose you had shares worth $50,000 and had seen their value drop to $45,000 in the last downturn.  Because the value is reduced, there is less capital gains tax to pay when you cash them in, and because you are moving to the same investment inside super, you are not losing the asset.

A person is 42, earns $80,000 a year and has accumulated $50,000 in quality share trusts.  If they make no further contributions and the funds average 7.5 percent a year after tax, they will be worth $280,000 at age 65.  Unfortunately, capital gains tax could take a hefty chunk of that if they cash them in. 

A better strategy may be to bite the bullet now, cash the investment in, and place the proceeds into super as a non-concessional (undeducted) contribution.  Sure, CGT will take $4,000 leaving them with $46,000 to invest but the funds will produce a much better after tax return because they are now in the low taxed superannuation environment.  At age 65, they should be worth $360,000.

Because withdrawals from super are tax free after 60, the entire proceeds should be CGT free if an account-based (allocated) pension has been started.  That small decision to move those investments inside super at age 42, has boosted retirement savings by around $100,000.

As always it is important to consult your financial adviser before cashing in any investments or moving money to super.  There can be harsh penalties if you get it wrong, particularly if you exceed the amount you are allowed to contribute in any one year.

Noel Whittaker is a director of Whittaker Macnaught Pty Ltd.  His advice is general in nature and readers should seek their own professional advice before making any financial decisions.  His email is noel.whittaker@whittakermacnaught.com.au


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