|
|
 NEWS |
|
|
|
|
Superannuation
Tactics to maximise returns in your DIY fund in a tumbling sharemarket
Gillian Bullock - October 16, 2008
With the sharemarket tumbling more than 30 per cent since its peak of 6873.2 in November last year, those with self-managed super funds might want to consider making in specie contributions to take advantage of these low prices.
In specie contributions are where you transfer selected assets you own outside super into your fund.
Such assets include listed securities (shares), managed funds and business real property and the transaction is a capital gains tax event.
There are advantages in pursuing this strategy although you need to be careful that you don’t end up on the wrong side of the taxman.
If you merely take all your shares outside super that have recorded a capital loss in the current financial year and then transfer them into your super, the Australian Taxation Office may well frown on this action as a wash sale.
Earlier this year the ATO clamped down on wash sale transactions where investors sell poor performing assets in order to crystallise capital losses only to repurchase similar assets shortly after. If you contribute only your poor investments then the transaction might be seen as a ploy to minimise your tax position rather than to meet the two main criteria of a super fund, namely that the transaction is for economic purposes and you believe it will maximise your retirement benefit.
Without meeting those two criteria you would breach the sole purpose test.
So to comply you need to choose stocks with the best potential to suit your retirement needs rather than pick the biggest losers from your non-super portfolio.
Once the shares are in the super fund then they are likely to have a low cost base. While the cost base is probably irrelevant if you hold on to the shares until you enter the pension phase when no capital gains tax is chargeable, it can offer some other advantages in the near term.
Helena Gibson, technical services manager at Perpetual observes that low share prices mean that you will get more bang for your buck once markets recover and as a result you can effectively better the contribution caps.
Under superannuation rules, you are limited to making undeducted contributions up to a maximum of $450,000 over any rolling three-year period. If you put $450,000 worth of shares into your super now while prices are low, then once the market recovers your initial contribution may handsomely outstrip the $450,000 cap.
If you can’t take advantage of in specie contributions, then what are other strategies you can use to maximise returns in your DIY fund in a falling sharemarket?
Most observers seem to be of the view that despite the continued volatility in the sharemarket, now might be the time to buy back in through dollar cost averaging. Diversification in your portfolio should be the name of the game although artworks and classic cars can present extensive compliance problems. If you put a painting in your super, then you will have to wait until you retire before you can enjoy its beauty – in the meantime you will have to lock it away in a safe or rent it out to some third party. As a result it’s probably a better option to stick with the more traditional superannuation investments.
Kevin Smith suggests you ensure you are well diversified and invest in high quality assets. The demand for term deposits has been high but you should also consider fixed interest investments such as high quality corporate bonds.
And he makes the point that if your super balance is heading backwards, now might be a good time to see what you can do to maximise the tax advantages.
For instance, if you are over 55 you might consider starting a pension as earnings on investments in super in the pension phase are tax free. And if you have investments in stocks with franking credits then you will also benefit from receiving this money as cash.
With almost 30 years in financial journalism behind her, Gillian has written for major newspapers, magazines and websites including News Limited's Money Magazine. She is the author of "Taking Stock: A Guide to Finding the Right Stockbroker."
More articles from this edition of CompareShares:
Investing: Stockmarket courses can be pricey, but do they offer the secret to investing success?
Superannuation: Tactics to maximise returns in your DIY fund in a tumbling sharemarket
Advisor Lounge: Should I sell my home, buy a cheaper one, and invest the remaining funds for retirement?
Expert Panel: The market goes up and down every day – but how is this figure calculated?
Stocks: Is Woolworths a good defensive stock in turbulent times?
Global Crisis: Recession fears send stocks plunging
Property: $1.5b boost to buy homes 'nonsense'
Super: Retail super yields lower returns
Tax: Advanced countries near record high tax
Credit Crisis: German banks warned they could be next
Companies: Creditors vote to liquidate Opes Prime
 Email to a friend
 Print this article
|
|
