Join the millionaire club

EVERY three to five years, the tax, super or social security rules change in important ways, creating an attractive opportunity for a group of investors. Invariably the rule change involves removing an existing concession.
This time is no different.
The opportunity involves making undeducted contributions into super of up to $1 million before June 30, 2007.

From the 2007-08 financial year onwards, the basic rule is that only $150,000 in undeducted contributions during a financial year can go into a fund tax-free.

There are some other important rules about undeducted contributions, but we will not look at them now.

Many people are looking at this close-ended opportunity and are wondering what they can do to take advantage of it. Here are a range of options to consider:

Home equity
MANY people have most of their wealth tied up in the family home. At a practical level it appears to be difficult to get money into super simply because the funds are not available.

There are, however, solutions to this problem. You could organise a line of credit using the family home as security and then use the borrowings to make super contributions.

A disadvantage with this approach is that interest payments must be made regularly.

An alternative approach is to use a reverse mortgage. These products provide a lump sum that can then be contributed to super.

Here, interest payments don't need to be made and are added to the outstanding loan balance. Capitalised interest causes its own hassles, but in many cases the loan is repaid by your deceased estate.

Selling assets
THIS is currently a popular area and if media reports are correct, many people are selling investment properties to make contributions to super.

In some rental markets these property sales are having a negative impact on weekly rents.

It is yet to be seen if this shock will be as great as the bang created during the mid-1980s when the Labor government temporarily removed interest deductions on residential property investments.

When assets are sold, capital gains tax has to be paid and transaction costs must be taken into account.

Two important points to remember for some investors are that the super contribution would be net of capital gains tax and the outstanding loan balance.

As the investment loan has been repaid the relevant tax deductions for your investment property (agent fees, repairs, loan interest) are lost too, which means additional personal income tax must be paid.

There are several alternative approaches to selling assets, particularly if the asset is property.

First, an investment property investor may be able to use a reverse mortgage.

Without going into specifics, this can have two advantages: reducing capital gains tax and enabling an investor to delay the sale of an asset if the sale price for it is unattractive.

This point is especially important if the property market is down, as it is right now.

Second, a residential property investor may be able to use a unit trust to hold their property assets and the super fund could invest in that unit trust.

This is a complex area and advice should be sought. Furthermore this type of structure must be very carefully managed because it is easy to forget to do something, which may cause the fund to become non-complying and therefore subject to penalties.

An important feature of these arrangements is that the residential property cannot be leased to related parties of the fund.

Retiring
SOME investors are selling their businesses. If they are eligible they may be able to get CGT exemptions on the sale of that business.

This frees up cash, which can be contributed to super. Current government rules mayt allow up $2 million in undeducted contributions.

Happy families
PEOPLE are giving up to $1 million to their parents and asking them to contribute it as undeducted contributions to super.

This strategy will work only if the