You Talk - How to sell property to make super contribution after retirement

Jeremy asks: My wife and I are 60 years old, employed full-time and have a jointly owned investment property we’d like to sell. We plan to retire at the end of this financial year. Should we contribute the sale proceeds into superannuation and should we do this before or after we retire?

Hi Jeremy.

If you contribute the sale proceeds into super, then:

• you could start larger superannuation pensions to fund your living expenses in retirement

• no tax would be payable on earnings in the pension, and

• all your pension payments would be tax-free.

If, on the other hand, you invested the sale proceeds in your own names, outside super, earnings would be taxable at your marginal tax rates.

If you decide that contributing the proceeds into super is the best approach for you, then it is very important you consider the timing of this strategy.

If you sell and contribute next financial year, after you retire, you could end up paying less tax.

This is because:

• you could claim some of your super contributions (from the investment property sale proceeds) as a tax deduction if, as is likely to be the case, you earn less than 10% of your income from employment

• the deduction could be used to reduce some of the taxable capitaI gain you make on the sale of the property or other sources of taxable income, and

• your other sources of taxable income are likely to be lower, so the marginal tax rate you pay on the remaining taxable capital gain and other income sources could be lower too.

Conversely, if you sell and contribute this financial year:

• you will not be eligible to claim some of your super contributions as a tax deduction, and

• the marginal tax rate you will have to pay on the gains is likely to be higher.

We do, however, recommend you speak with us to find whether selling and contributing to super is the best strategy for you.