Downsizing provisions a mixed bag

While far from ideal, the budget initiative to allow older Australians to deposit up to $300,000 each in superannuation when they downsize their home is welcome. Unfortunately, the change is not to start until July 2018 and this could well result in retirees delaying the sale of their properties until after that date.

To qualify for the new benefit, taxpayers will have to be aged 65 or older and have owned their house for at least 10 years

What is not yet clear is whether the legislation will depart from the capital gains tax provisions, which define the sale date as the date of signing the contract. If the change is to encourage sales while the property market remains strong, the legislation should define the date of sale as the settlement date.

This would encourage retirees to consider sales in 2017 or early 2018 with settlement dates after July 1, 2018 and help increase the supply of housing. Being able to deposit additional money in super after age 65 is a major improvement. It will help people who are not working or not allowed to make further super contributions because of the new $1.6 million cap.

However, it will not help address the biggest obstacle to downsizing for many retirees. This is the age pension assets test exemption of the full value of the family home. Additional cash received from downsizing is subject to the assets test as soon as it's received.

The tax advantages of being able to invest additional money in a super or pension fund are far less than the reduction in age pension entitlement from having larger assessable assets.

There are no longer any pension advantages from investing new money into super and the budget clearly set out that this would not be changed.

In this context, it's disappointing that the widely welcomed decision to restore Pensioner Concession Card (PCC) benefits to retirees who lost their age pension entitlement when the asset test was changed was not offered also to future downsizers.

Even if the budgetary cost of ignoring the proceeds of downsizing for the assets test is too high, allowing continued access to the PCC for pensioners who downsize and lose their age pension would be a lower-cost way of encouraging older retirees to move to more suitable accommodation.

In assessing the benefits of putting more money into super, downsizers will need to evaluate whether the tax advantages of doing so outweigh the costs and additional complexity of investing in super.

Those with considerable money in super already will be able to identify the benefits of adding more to their accounts and will not face new super investors' decisions about choice of fund and investment options.

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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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