Over 65? Sell your home and contribute more to super
27 February 2018 Trish Power
From 1 July 2018, an Australian aged 65 years or over will be able to make non-concessional (after-tax) contributions into a super fund account (accumulation account), up to a maximum of $300,000, from the proceeds of selling his or her home. If a couple sells their home, they can contribute up to $300,000 each. The downsizing contributions will not count towards an individual’s annual non-concessional contributions cap.
Note: A person is only eligible for this measure if they have owned their principal place of residence for a minimum of 10 years, and the contract of sale is signed on or after 1 July 2018.
Background: In the 2017 Federal Budget (released on 9 May 2017), the government announced that it wanted to encourage “some older people to downsize from homes that no longer meet their needs and free up housing stock for young families starting out”.
I think the policy, as it has been announced, is convoluted, because it is indeed complicated, not generous enough, and the individuals choosing to sell their home will potentially lose some, or all, of their Age Pension entitlements (if applicable). In addition, the single person or couple will cop house-selling costs and then get stung with stamp duty when they purchase their smaller home.
Perhaps I am missing something, and perhaps there are some individuals who can see the merit of this measure. The government has only budgeted a cost to revenue of $30 million over 4 years, so it appears the government is not expecting the measure to be snapped up by thousands of retirees.
Let’s assume that the negatives of the policy don’t phase you, and you wouldn’t mind freeing up some cash and downsizing. You may then ask, what about the over-65s work test? Under this measure, the work test would not apply which means retired couples, or a single person, won’t have to worry about satisfying a work test before making super contributions.
Further, the contributions under this measure don’t count towards the annual $100,000 non-concessional contributions (NCCs) cap, so if a person satisfies the work test, they could also make additional NCCs up to the annual cap.
If a person is flush with super savings (and if they are, I can’t see them getting too excited about this new measure), that is, they have a total superannuation balance of more than $1.6 million, then they will still be able to take advantage of this new measure. Under the normal super rules, since1 July 2017, if a person has $1.6 million or more in super savings they cannot make any non-concessional (after-tax) contributions, but this restriction will not apply if a person aged 65 years or over, sells their home and makes non-concessional contributions to a super account.
For a more detailed explanation of the rules applicable to the downsizing and super proposal see SuperGuidearticle Contributing super by downsizing your home: 10-point guide.
For more information about how a person’s Total Superannuation Balance can affect super contributions, see SuperGuide articles Total Superannuation Balance: 7 reasons why your TSB matters and Super contributions: Bring-forward rule and your Total Superannuation Balance).
Clearly, Treasurer Scott Morrison does not have a long memory. In the May 2013 Federal Budget, the former ALP government announced a pilot program to assist senior Australians to downsize to a home more suitable to their needs, BUT the big difference with the ALP policy was that downsizing would NOT reduce the individual’s Age Pension entitlements.
Background on former ALP government policy: According to the May 2013 Budget papers, “from 1 July 2014, senior Australian homeowners who have owned their family home for at least 25 years and who decide to downsize will have the option to invest surplus funds (up to $200,000) in an account. The funds invested in the account and earned interest, will be exempt from the Age Pension means test for up to 10 years.”
The ALP version of the measure never became law, and the Liberals won the September 2013 election, and that was the end of that.
It seems that the same crew in Treasury who advised the ALP government, may be advising the Liberal government, but Treasurer Morrison is coming up with a meaner version of a rehashed policy.
And the other super measure in the 2017 Federal Budget, the First Home Super Saver Scheme is another example, of a rehashed, but meaner, Scott Morrison policy (for information on the FHSSS, see SuperGuide article First Home Super Saver Scheme a fizzer, again!).
Date: December 18, 2017