Downsizing proposals for retirees simple and sensible

Treasury draft consultation papers on super legislation changes rarely provide pleasant reading for those affected by the changes. However, the clarity and sensible provisions of the proposal to allow downsizing home owners to deposit up to $300,000 each in their superannuation account can only be welcomed by older Australians.

The proposed changes are long overdue because of the restrictions limiting the amounts people aged 65 and over can deposit in their super fund. Once implemented, the changes will allow them to deposit in a super account up to $300,000 of the proceeds from selling a family home owned for 10 or more years.

By all measures these proposed rules are realistic and easy to understand. The changes apply to contracts for sale exchanged on or after July 1, 2018.

The property must be owned continuously for 10 years and have been used as a main residence eligible for capital gains tax exemption for at least part of this period.

The consultation draft extends the right to contribute up to $300,000 into super to the vendor and their spouse even if their names are not on the title, provided they are aged 65 or over. This arrangement covers the situation where, for a variety of reasons, it wasn't possible to include the current spouse's name on the title.

The requirement limiting the ability to contribute to 90 days after the settlement date when the cash becomes available allows ample time for vendors to decide whether to make a super contribution.

The legislation allows super funds not to accept downsizing contributions. But given the potential size of the contributions, most funds are likely to welcome this source of new business.

The contributions are not eligible for a tax deduction and won't be subject to contributions tax. A bonus is that non-concessional contributions can be withdrawn from a super fund tax-free any time after age 65. Thus, even if the maximum $300,000 or $600,000 (couple) downsizing contribution is made, the money is still easily accessible if needed.

Depositing the money in super offers tax advantages for retirees paying personal income tax but where no income tax is payable, investment of the surplus funds outside super may be more attractive. The new arrangements won't provide age pension benefits because pension assets and income tests now apply to new funds deposited in super.

Even without any social security benefits, the proposed legislation extends the retirement options available to those aged 65 or over. As such, it's a first step to encourage and assist a more efficient use of our housing stock. Having less money tied up in the family home and more in super will benefit many retirees and the economy.

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Daryl Dixon

Executive Chairman

Daryl Dixon is one of Australia’s foremost investment experts and a well known writer and consultant. He has provided trusted advice to thousands of personal clients over more than 25 years and is an acknowledged expert in the areas of tax, superannuation (including public sector superannuation), social security and investments.

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