With what feels like continuous changes to superannuation legislation, it is no wonder that navigating retirement planning can be a challenge. Fortunately, there are still concessions provided to retirees and ways to maximise your superannuation balance in the lead up to retirement.
The downsizer measure, which became available 1 July 2018, allows people over the age of 65 years to make a “downsizer contribution” using the proceeds from the sale of their home. Each member of a couple can contribute $300,000 into superannuation from the sale of their former home, potentially unlocking $600,000 to add to their retirement savings.
The key advantage of this strategy is to increase the tax effective income stream to boost retirement income. If the maximum contribution of $600,000 is made, at a conservative return of 5% per annum, this could realise another $30,000 in tax free retirement income each year.
To be eligible to make the downsizer super contribution you must:
- Be over 65 years old
- The home sold must be the main residence with full or partial CGT exemption
- Have had an ownership interest in the main residence for 10 years immediately prior to the sale (ownership being calculated from the date of settlement).
- Ensure the contribution is made within 90 days of the change in ownership
- Notify the trustee of your super fund (via the approved Downsizer Super Form) of the intention to treat the contribution as a downsizer contribution at the time the contribution is made
- Ensure that a downsizer contribution has not been made in relation to a previous home in the past.
Interestingly, the downsizer contribution has no upper age limit on making the contribution. So if you are 90 years old, and entering residential aged care, the downsizer contribution could be used to top up superannuation after the accommodation bond is paid. Another concession is that there is no legislative requirement to purchase a new home, or even a home of a lesser value when making the downsizer contribution.
There are a few things to look out for. One potential downside is that the strategy can affect Age Pension eligibility. If you are planning on, or already relying on the Age Pension, the increase in assessable assets could reduce your Age Pension entitlements.
If each member of a couple contributes the maximum of $300,000 each, that represents an increase of $600,000 in assessable assets or $19,500 in assessable income. The consideration here needs to be the impact of the reduction in Age Pension from Centrelink, versus the increased tax-free income that can be generated from the additional superannuation.
Another potential downside can be in relation to entering residential aged care. If the family home is downsized and consequently Centrelink benefits reduced, the increase in assessable assets could result in an increased means tested amount, which could increase or result in an accommodation payment, accommodation contribution or means-tested care fee.
Depending on your personal situation, unlocking wealth in the family home to assist with your retirement aspirations could mean the increase in income you need to live the retirement you want. The tax-free pension environment represents the most tax efficient vehicle for investment with up to $1.6m of the balance receiving a zero tax rate on earnings. You just need to ensure that you have done your homework on the downsizer contribution and make sure it will not affect other aspects of your finances.
Aptus Financial Pty Ltd is an Authorised Representative of Count. ‘Count’ and Count Wealth Accountants® are trading names of Count Financial Limited, ABN 19 001 974 625 Australian Financial Services Licence Holder Number 227232 (“Count”) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. Count is a Professional Partner of the Financial Planning Association of Australia Limited.
General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.
Author: Simone Hill