Utilise the $540,000 Non-Concessional Contribution with your commercial property.

With the changes coming into effect 1 July 2017 the maximum Non-Concessional Contribution (NCC) a member will be able to make is reducing from $180,000 to $100,000. This being the after tax contribution allowed in any one year.

 

Due to this, the bring forward provision will also decrees. This provision allows a member to bring forward three years of NCCs to be utilised at once. Currently if a member has not made any NCCs in the 2014/15 and 2015/16 financial years, that member would be entitled to make a full NCC of $540,000 ($180,000 x 3). After 1 July this will reduce to $300,000 ($100,000 x x3)

 

One way to utilise the maximum NCC of $540,000 prior to 1 July, is to transfer business real property owned by the member in their personal name into their SMSF, effectively treating up to $540,000 of the value of the property as a NCC for the transferring member.

 

For example, John and Lisa are members of a SMSF.  John owns business real property in NSW in his personal name with a market value of $1,000,000.  John wants to transfer $540,000 of the property by way of NCC and then pay the remainder $460,000 from his member balance in his SMSF.

 

In NSW this type of transaction attracts concessional stamp duty of $500 provided certain requirements are met, including:

1.    The property must be “business real property” in NSW.

2.    The member must own and hold the property in their personal capacity (ie, not as trustee of a trust).

3.    The property once transferred into the SMSF must be “segregated” for the benefit of John only (being the person who transferred the property) and this is irrevocable (this means once the property is transferred into the SMSF only John will benefit from the property (ie, any incoming rent from that property is credited towards John’s member account and not Lisa’s account).

4.    The transfer must be at market value (the property will need to be valued by an independent qualified valuer).

 

If John did not have sufficient funds in his member account in the SMSF to pay $460,000, John could transfer a part interest in the property to the SMSF.  In our example, John could transfer a 54% interest in the property into the fund as a NCC with the end result of the property being held as follows:

•    46% share by John in his own capacity; and

•    54% share held by the fund.

 

The transfer of John’s 54% interest in the property to the SMSF may be liable for only $500 duty if all the other relevant requirements were met.

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