Is it a good time to put your shares in super?
Investors have ridden the highs and lows of trading in the last 12 months, more so than usual.
The Australian All Ordinaries is down 5.1, finance sector stocks are down around 7.2% and metals, mining sector stocks are down on average 19.2% for the year and let’s not forget oil stock investors, who are scratching their heads over whether to buy back in, or stay right out.
As we know, there are stocks that defy the trend, potential future gold producer Blackham (ASX:BLK) has had an excellent run, along with oil explorer 88 Energy (ASX:88E) and graphite explorer Volt Resources (ASX:VRC); graphite is a star mineral at the moment, with requirements growing as the so-called energy revolution takes hold.
The past performance of these stocks is not and should not be taken as an indication of future performance.
According to Andrew Zibik, senior financial planner at Omniwealth, the general downturn may present a smart opportunity for investors nearing retirement in the next five years.
Zibik says it is possible to contribute your shares in what is called an ‘in-specie’ contribution to your superannuation fund.
An in-specie contribution takes the cash out of the super equation.
“The benefits of this strategy is that you can continue to hold your shares and move the ownership of that holding into the superannuation environment which has a lower tax rate compared to many investors marginal tax rate,” Zibik says.
“If the shares are being transferred at a price lower than what you paid for them there will be no capital gains tax payable.”
Zibik says that regardless of who wins the election on 2 July, most superannuants will still be able to draw an account based pension from the superannuation fund tax free.
There are several things to consider with in-specie contributions.
Zibik lists 5:
1) Making an in specie transfer of shares from your own name to your superannuation fund is a capital gains event. This means that if you are transferring the shares at a higher value than what you purchased them you may need to pay capital gains tax. If you are transferring the shares at a loss it means you will retain that loss on your tax return which can be used to offset future capital gains. Given some shares are trading at five year lows, it may be an opportune time to contribute these shares to your superannuation fund to allow future gains to be made in a concessional tax environment that is superannuation.
2) You must choose a date that the transfer is to take place, properly report the true value of the share on that day as your sale/purchase price and the share registry must be notified of this transfer within 28 days.
3) Transferring shares into superannuation will most likely count towards your non-concessional contribution cap which is currently $180,000 for this financial year or $500,000 if you bring forward three years of contributions. Given the recent changes announced in the budget, one cannot make more than $500,000 in non-concessional contributions dating back from 1 July 2007.
4) Ultimately, one would only use this strategy if they anticipate to continue holding these shares for the long-term.
5) Most members of a self-managed superannuation fund will be able to use this strategy. Some retail superannuation funds will accept shares as an in specie contribution. Unfortunately, most industry funds are not able to receive in specie contributions of shares yet but several are investigating this as an option in the future.