MONEY MATTERS MONDAY 10TH SEPTEMBER 2018
Downsizer Super Contributions
As mentioned last week the First Home Super Savings Scheme can benefit many people but it has gone relatively unnoticed. Another new scheme that offers potential for many people but has received little publicity is the Downsizer Super Contribution Scheme.
Many older people find there comes a time in their lives when the family home that has served them well for so long is now much bigger than they require and has become a burden to maintain. What if they could downsize and put the surplus in superannuation to help generate retirement income?
Now they can. From 1st July 2018 anyone aged 65 or older who sells a primary residence they have owned for at least ten years can contribute up to $300,000 from the sale into super.
Contributions to Super
If the home is jointly owned both people can contribute. A home that is owned by one person but is the home of a couple will entitle both people to put up to $300,000 into super.
An extra $300,000 in a retirement pension plan could generate an extra $12,000 to $15,000 per annum income, depending on the investments the retiree is comfortable with. That could make a big difference to their living standard.
There are several eligibility criteria to meet. The person must be aged 65 or more. There is no maximum age. The contract for sale must have been signed on or after 1st July 2018. It is not necessary to buy a cheaper home, or to buy another home at all. The home cannot be a caravan or mobile home.
The super contribution is not subject to the $1.6 million balance restriction, but if the member is over that limit they will not be able to convert it to a pension.
The home does not have to be the one the person is living in now. It could be a former primary residence that they have owned for more than ten years. It must qualify fully or partly for the primary residence capital gains tax exemption.
The contribution must be made within ninety days of receipt of the sale proceeds. Money from only one home sale can be put in and the contribution(s) cannot exceed the sale proceeds. If the proceeds are less than the limits the person cannot put extra in super from a second home sale or other sources.
Get professional advice
There is one potentially large disadvantage of the scheme. The super contribution is not exempt from the age pension assets test. Nor are any other sale proceeds not put in super. The primary residence is exempt but proceeds from its sale aren’t.
This could see some people’s pensions cut sharply. It will be very important to carefully evaluate the effect of the proposed home sale on any age pensions. Professional advice will be best for this.
This is general advice and should not be treated as personal advice. Russell Tym is an authorised representative of MoneyLink Financial Planning Pty Ltd ASFL No: 247360.
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