Shares or Superannuation?

[Ferrets]

I have an option to sell some shares that I got via an employee share sheme, with minimal CGT due to holding for more that 12 months and minimal market price movement.

This would allow my wife to salary sacrifice a higher proportion of her salary into her superannuation, and I believe also unlock government co-contribution and low income offset.

Whilst it would be broadly converting one form on investment for another, is it better to have concessional contributions banked vs shares in the long run?  We're early forties and playing catchup on our Australian super at the moment (alongside also making voluntary NIC to HMRC).

Thoughts?

Cheers!

[Steve Elliott]

Hi Ferrets

As a financial adviser of 30+ years and given the nature of your question, it is impossible to answer your question on a public forum in such a way to break the advice rules for which there would likely be severe consequences. 

One general comment I would make is around risk and diversification. Your employee shares are shares in one specific company so the long term performance is entirely dependent on the fortunes of this company. Money in super, if invested in large reputable industry funds will typically be more diversified and thus the returns will likely be steadier and more consistent. Your super wont shoot the lights out, neither will it disappear.  There's also an added benefit in terms of not being able to access the funds until retirement. 

There are some experienced financial advisers here and it might be worth your while having a chat as you have a number of technical issues/moving parts to consider.

Good luck.

[Marisawright]

1 hour ago, Ferrets said:

I have an option to sell some shares that I got via an employee share sheme, with minimal CGT due to holding for more that 12 months and minimal market price movement.

After my sister lost most of her savings when Enron collapsed, I don't trust employee share schemes!    It's never wise to have all your eggs in one basket, when it comes to shares.

Basically, if you invest in superannuation, most of your money is being invested in shares anyway.  The difference is that (a) you pay less tax on the profits and (b) it's 'set and forget', whereas if you have a share portfolio, you should be managing it actively and that means you need to know what you're doing.

For me, the bigger question is:  are BOTH of you 120% convinced that you are going to live in Australia for the rest of your lives, until you die?   Because if there's any uncertainty at all, you shouldn't put any more into superannuation than you have to.  I say that because one of the main advantages of super is its favourable tax treatment in Australia when you retire.  But if you decide to retire back in the UK or elsewhere, HMRC will tax it.  If you take a lump sum once you're retired in the UK, for instance, you would lose over a third of it in UK tax.

[Andrew from Vista Financial]

2 hours ago, Ferrets said:

I have an option to sell some shares that I got via an employee share sheme, with minimal CGT due to holding for more that 12 months and minimal market price movement.

This would allow my wife to salary sacrifice a higher proportion of her salary into her superannuation, and I believe also unlock government co-contribution and low income offset.

Whilst it would be broadly converting one form on investment for another, is it better to have concessional contributions banked vs shares in the long run?  We're early forties and playing catchup on our Australian super at the moment (alongside also making voluntary NIC to HMRC).

Thoughts?

Cheers!

Hi

The comparison you are looking to make is actually not an equal comparison.

Concessional contributions are a way of investing money and as an added bonus to (potentially) gain a tax benefit.

When contributing to Super the money can be invested into an array of assets including Direct Shares, ETF's, Managed Funds, Private Markets etc subject to the investment menu of your Superannuation Fund's Investment Platform.

Now if you want to understand what is better when holding an investment (inside or outside of super) for the long term, this will come down to your individual tax rate.

For most people when building up retirement monies Superannuuation is a better environment due to the lower tax rate applied to capital gains and income (10%-15%) as opposed to their marginal tax rate which is usually higher.

Concessional Contributions (which are made up of employer superannuation guarantee payments, salary sacrifice and tax deductible contributions can be a very good way of building retirement wealth and at the same time significantly reducing one's tax liability. The annual cap for these type of contributions is currently $27,500.

If you have unused concessional cap amounts from previous years, you may be able to carry them forward to increase your contribution caps in later years. You're eligible to do this if you:

• have a total super balance of less than $500,000 at 30 June of the previous financial year
• have unused concessional contributions cap amounts from up to 5 previous years (but not before 2018–19).

The unused cap amounts you can carry forward depends on the amount you have contributed in previous years, starting from 2018–19. You can carry forward unused cap amounts from up to 5 previous financial years, including when you were not a member of a super fund.

https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/caps-limits-and-tax-on-super-contributions/concessional-contributions-cap

 Also to note that the Government Co-Contribution is not paid on Concessional Contributions (pre-tax), it is paid on Non-Concessional Contributions (post-tax): 

https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/how-to-save-more-in-your-super/government-super-contributions/super-co-contribution

 

Hope this helps.

 

Andy

[Ferrets]

Thanks for the thoughts, it's really appreciated.

We don't have any intention to move back to the UK, and no desire after a trip back last year but never say never as kids will have both passports soon.

The benefit in my mind is that if my wife make extra contributions it means our combined super starts getting to the level where an SMSF might make sense.  I'm weighing that up againstcontinuing to hold shares, being exposed to any company specific impacts and then potentially being hit with CGT down the line.

My wife does have some unused concessional carry forward which again is why I'm weighing this up, and noted on the co-contribution.

Definately some mulling over to do - I can't do anything immediately as we're in a trading blackout atm.

Thanks all!

[Blue Manna]

On 23/01/2024 at 09:17, Ferrets said:

Thanks for the thoughts, it's really appreciated.

We don't have any intention to move back to the UK, and no desire after a trip back last year but never say never as kids will have both passports soon.

The benefit in my mind is that if my wife make extra contributions it means our combined super starts getting to the level where an SMSF might make sense.  I'm weighing that up againstcontinuing to hold shares, being exposed to any company specific impacts and then potentially being hit with CGT down the line.

My wife does have some unused concessional carry forward which again is why I'm weighing this up, and noted on the co-contribution.

Definately some mulling over to do - I can't do anything immediately as we're in a trading blackout atm.

Thanks all!

I have effectively done something similar to what you are suggesting (in the UK) and it worked well for us. But obviously it depends on your circumstances.

I used to work with a guy who remortgaged his house, lived on the funds and over paid his pension to the max. That worked well for him, as the tax savings were substantial. This was over COVID too, when the markets dropped considerably.

It's worth thinking laterally sometimes. Good luck.

[Ken]

One thing to consider is that if you put your money into Super there are very limited circumstances in which you can access that money before you are old enough, whereas shares can be sold at any time.

Some people might see having their money locked in Super as an advantage as it will stop them from squandering it early. For other people it could be seen as a distinct disadvantage.

[InnerVoice]

On 23/01/2024 at 08:55, Marisawright said:

After my sister lost most of her savings when Enron collapsed, I don't trust employee share schemes!    It's never wise to have all your eggs in one basket, when it comes to shares.

Basically, if you invest in superannuation, most of your money is being invested in shares anyway.  The difference is that (a) you pay less tax on the profits and (b) it's 'set and forget', whereas if you have a share portfolio, you should be managing it actively and that means you need to know what you're doing.

For me, the bigger question is:  are BOTH of you 120% convinced that you are going to live in Australia for the rest of your lives, until you die?   Because if there's any uncertainty at all, you shouldn't put any more into superannuation than you have to.  I say that because one of the main advantages of super is its favourable tax treatment in Australia when you retire.  But if you decide to retire back in the UK or elsewhere, HMRC will tax it.  If you take a lump sum once you're retired in the UK, for instance, you would lose over a third of it in UK tax.

I totally agree, one of my friends worked for Enron for several years and lost his job and all his company shares on the same day. Fortunately he took it in his stride and has done very well for himself since. If the OP has a mortgage with either an offset or withdraw facility, another idea worth considering is to sell the shares and pay off part of their mortgage. Current interest rates for mortgages are around 6% so that isn't far short of average long-term gains on conservative super funds, but the OP would have the advantage of still being able to access the funds if required.

[Ferrets]

15 hours ago, InnerVoice said:

I totally agree, one of my friends worked for Enron for several years and lost his job and all his company shares on the same day. Fortunately he took it in his stride and has done very well for himself since. If the OP has a mortgage with either an offset or withdraw facility, another idea worth considering is to sell the shares and pay off part of their mortgage. Current interest rates for mortgages are around 6% so that isn't far short of average long-term gains on conservative super funds, but the OP would have the advantage of still being able to access the funds if required.

That’s a good shout, when the trading blackout is over I’ll look to cash out shares that I have held long enough for the CGT discount and then drop into an offset account.

Then in June we’ll run the numbers with my wife’s YTD earnings and then work out what concessional payment to make to her Super.

Thanks all!

Edited January 25 by Ferrets

[InnerVoice]

57 minutes ago, Ferrets said:

That’s a good shout, when the trading blackout is over I’ll look to cash out shares that I have held long enough for the CGT discount and then drop into an offset account.

Then in June we’ll run the numbers with my wife’s YTD earnings and then work out what concessional payment to make ti her Super.

Thanks all!

I have have some investments in equities that I'll be cashing in and doing the same with when my preferential mortgage rate ends in June.

[Wa7]

1 hour ago, Ferrets said:

That’s a good shout, when the trading blackout is over I’ll look to cash out shares that I have held long enough for the CGT discount and then drop into an offset account.

Then in June we’ll run the numbers with my wife’s YTD earnings and then work out what concessional payment to make to her Super.

Thanks all!

Reduces interest costs and tax free.

 

Edited January 25 by Wa7

[Blue Manna]

On 25/01/2024 at 07:43, InnerVoice said:

I totally agree, one of my friends worked for Enron for several years and lost his job and all his company shares on the same day. Fortunately he took it in his stride and has done very well for himself since. If the OP has a mortgage with either an offset or withdraw facility, another idea worth considering is to sell the shares and pay off part of their mortgage. Current interest rates for mortgages are around 6% so that isn't far short of average long-term gains on conservative super funds, but the OP would have the advantage of still being able to access the funds if required.

Company shares are usually a no brainer. They are tax free and the company often chips in. You would be mad not to take them. But I also wouldn't leave them in for any longer than you have to. Once they are free to sell, consider diversification.