A mad rush out of the bricks and mortar

When the Federal Government announced the transitional arrangements to super, with up to $1,000,000 per person being able to be contributed between 9 May 2006 and 30 June 2007, we all expected a mad rush on the Boomers selling up their assets and dumping the proceeds into super.

Well it looks like it's started. Carrie LaFranz reports on how Real Estate listings are well and truly on the rise, with a large number of listing reportedly being made purely to take advantage of the new rules. The proceeds, when thrown into super, are helping contribute to the Bull Run that our market is currently having.

All of a sudden the Baby Boomer's love affair with bricks and mortar has shifted, thanks to Mr Costello offering them tax free retirements. It goes to show, the "property is the best form investment" mentality that many Boomers exhibit is soon forgotten when they are presented with the opportunity to save a few dollars in tax.

However, before you get rid of your investment property, which is apparently about to increase its yield by up to 20%, at a possible discount due to a glut of For Sale signs in front yards, there may be alternative strategies available to you.

1. Sell your properties later. If you're part of a couple, you can contribute $150,000 each to super every year until you turn 65. This can be averaged out over a 3 year period, effectively allowing a one off $450,000 contribution each. Now lets assume you sell a property just prior to July one year, you can put in $150,000 each before July, and then $450,000 each after July. This is a total of $1.2 million.

2. Borrow to contribute. This one should be treated with caution. However, if you think your property would fetch more after July, when the glut of sales declines, you could borrow against your property now, and contribute this to super, paying the loan off when you sell the property. However, you will be liable to pay interest on this loan which is not deductible.

3. Transfer your property to a self managed super fund. If you own commercial property, this can possibly be transferred to Self Managed Fund. Capital gains tax will be payable, as you are effectively transferring ownership to another entity. Unfortunately domestic property cannot be transferred to a SMSF.

Before you rush to sell your investments, have a think about the other options available. Tax should be at the front of your mind. If the capital gains tax you will be paying is going to be a lot, the tax free status of super in pension phase may not be worth it. There are ways to lower this tax payable, but that's for another time.