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Baby Boomers can head back to the beach
The new rules for downsizing the family home and paying the proceeds into superannuation became law on December 7, 2017, the same night that the Same-Sex Marriage laws passed.
This means that from July 1, 2018, when Australians aged 65 and over sell a principal place of residence they have owned for at least 10 years they may contribute up to $300,000 from the proceeds into their superannuation accounts, over and above existing restrictions.
Both members of a couple can take advantage of this measure, together contributing up to $600,000 from the proceeds of the sale into superannuation.
There is pressure on government to free up homes in areas family buyers want to live in where many larger family homes sit occupied by only singles or couples.
In our experience downsizing is rarely driven by just financial reasons, with lifestyle, health and family reasons more often cited as the main factors.
For those who are receiving the age pension there remains a financial disincentive to downsizing as the family home is exempt from the assets test and the net proceeds of the downsizing is apparently included in the assets test so talk to a good accountant.
It will be interesting to see whether this does much to improve the availability of suitable properties. But, it should prove popular with self-funded retirees, of which there are many on the Gold Coast, who can then invest the savings in a 0% or at worse case 15% taxing environment and free up homes that no longer meet their needs for younger growing families.
The Details from Treasury
From 1 July 2018, people aged 65 and over will be able to make a non-concessional (post-tax) contribution into their superannuation of up to $300,000 from the proceeds of selling their home.
The existing voluntary contribution rules for people aged 65 and older (work test for 65-74 year olds, no contributions for those aged 75 and over) and restrictions on non-concessional contributions for people with balances above $1.6 million will NOT apply to contributions made under this new special downsizing cap.
This measure will apply to a principal place of residence held for a minimum of 10 years. Both members of a couple will be able to take advantage of this measure for the same home, meaning $600,000 per couple can be contributed to superannuation through the downsizing cap.
These new contributions will be in addition to any other voluntary contributions that people are able to make under the existing contribution rules and concessional and non-concessional caps.
It will assist people aged 65 and over who are currently unable to contribute all or any proceeds of the sale of their home into superannuation because of the existing restrictions and caps.
Below are a couple of scenarios provided in the Treasury Budget Papers.
Helping George and Jane downsize
George and Jane, both retired and aged 76 and 69, sell their home to move into more appropriate accommodation. The sale proceeds are $1.2 million. They can both make a non-concessional contribution into superannuation of $300,000 ($600,000 in total), even though Jane no longer satisfies the standard contribution work test and George is over 75. They can make these special contributions regardless of how much they already have in their accounts.
Helping John and Sarah downsize
John and Sarah, who are still working part-time at age 65, decide to sell the large family home after all the children move out. The sale proceeds are $1.4 million. They are both able to make a non-concessional contribution of $300,000 ($600,000 in total) into superannuation. This is regardless of how much they have in their accounts already. They may also be able to make additional contributions to their superannuation using the sale proceeds under standard contribution arrangements.
Questions and Answers
Will sale proceeds contributed to superannuation under this measure count toward the Age Pension assets test?
Yes. Any change in the person's superannuation balance as a result of this measure will count towards the Age Pension assets test.
Will contributions made under this measure be exempt from the $1.6 million transfer balance cap?
No. Only people who have remaining transfer balance cap space will be able to convert their contributions into a pension phase account where earnings are tax-free.
Will the $1.6 million balance threshold for making non-concessional contributions also apply to the special downsizing cap?
No. Restrictions on non-concessional contributions for people with balances above $1.6 million will not apply to contributions made under this new special downsizing cap
You can download a current (Dec 17) PDF fact sheet here.
by David Hamilton
Baby Boomers can head back to the beach
palmbeachfn.com.au December 2017 First National Palm Beach 18 Sixth Ave Palm Beach, Queensland 4221
Phone: 07 5559 9600