When it comes to what is described as a tax-concessional super contribution, there is a base rate of 15 per cent tax that applies to the annual cap of $27,500, says Fry.
Instead of paying this base tax of $4,125 on a one-year $27,500 super contribution entitlement, which will reduce the contribution to $23,375, a potential extra $4,125 in tax could reduce this further to $19,250.
That’s not to say this will automatically happen if your taxable income exceeds $250,000 and you contribute $27,500 to super.
To determine how much extra tax, you might be up for requires you to be aware of the rules that apply to Division 293 tax.
These rules require you to add your super contributions to your taxable income to create what is described as an adjusted taxable income, on which you then pay 15 per cent tax on the amount greater than $250,000.
For example, say your taxable income (including your capital gain) is $240,000 and you contribute $27,500 to super, your total adjusted taxable income will be $267,500 – $17,500 greater than $250,000.
This will make you liable for extra tax of 15 per cent on $17,500, or $2625.
To be up for the maximum Division 293 tax, you will need income that is well above $250,000. Say you earned $300,000 and contributed $27,500 to your super, your total adjusted income will be $327,500, which is well over $250,000. This will make you liable for an extra 15 per cent on your entire $27,500 concessional contribution – or another $4125 – reducing your super contribution to $19,250
Regarding your question whether this extra tax makes a super contribution worthwhile, says Fry, if you didn’t make a super contribution, the full tax payable on $27,500 at the highest personal tax rate would be $12,925.
So, making a tax-concessional contribution to super will result in an overall saving of $4,675 after the extra 15 per cent tax has been deducted. That is an important attraction offered by super.
Regarding your profit on the property investment, says Fry, it will need to be a substantial gain to push you into Division 293 tax given you will only be paying tax on half the capital gain after the cost base has been deducted.
So if your taxable capital gain pushes your income well above $250,000, you will still be nearly $5,000 better off making a super contribution, says Fry.
Regarding your wish to help your children, taking full advantage of your super opportunities might involve maximizing the super you transfer to the pension phase ($1.7 million) where investment earnings and withdrawals are tax-free.
Once you can access your super, this leads to the second part of your question regarding death benefits being paid to your adult children and the tax an adult child may be liable for.
Where super is paid as a death benefit to an adult child who is not a financial dependent of their parent with super, tax of 17 per cent (15 per cent plus 2 per cent Medicare) can apply to the taxable component – the super sourced from investment earnings and tax-concessional contributions.
But if the payment is made through an estate, the Medicare levy will not apply, meaning only a 15 per cent tax rate.
That said, no tax will apply if the super is withdrawn in your lifetime as this will be tax-free and can form part of an estate, if not spent, and therefore also be tax-free to any beneficiaries.