Thinking of Downsizing?

Tuesday, August 07, 2018

Many Australian retirees find they want a smaller home, or a home more suited to their empty-nest requirements. For some people selling the family home can be great way to release funds to pay for retirement living expenses or in-home support.

Older Australians are the people targeted by the federal government’s new policy to allow homeowners aged 65 years or over, to downsize their family home and invest the surplus into their super account.  Since 1 July 2018, Australians aged 65 years or older are able to make a non-concessional (after-tax) contribution into their super account of up to $300,000 from the sale proceeds of their family home if they have owned the property for at least 10 years. Couples will be able to contribute up to $300,000 each, giving a total contribution per couple of up to $600,000.

Although downsizing and contributing to super is an interesting idea, there are definitely some benefits and dangers to consider before taking the plunge.

Any super contributions made using the new downsizing rules are in addition to any voluntary contributions made under the existing non-concessional (after-tax) contributions cap. (For the 2018/2019 year, the annual non-concessional contributions cap is $100,000.)

There are some important considerations before downsizing your home and contributing to your super account.

  1. Retirees who have not had the opportunity to save sufficient funds for a comfortable retirement can use the new downsizing cap to top up an inadequate super balance and use the beneficial tax environment of the super system.

            Note: Australians who have reached Age Pension age, may already
           benefit from lower tax rates due to the effect of the Seniors and Pensioners
           Tax Offset.

  1. As long as you are over 65 there is no ‘work test’ or age limit for this downsizing super contribution
  2. An individual making a downsizing contribution (from the sale of their principal place of residence) is not required to buy a new home after they sell their home
  3. Contributions count toward Age Pension tests - downsizing contributions will be counted for the assets and income tests used to determine eligibility for the Age Pension and DVA benefits. Downsizers will be moving money out of an exempt asset (their family home), into the non-exempt and assessable environment of their super fund.  It’s also worth noting that your super balance (including downsizing contributions), is also used to determine eligibility for residential aged care and home care services - anyone considering moving into an aged care facility should seek advice.
  4. Transfer and property costs limit surplus capital - The costs involved in selling a family home can be substantial due to sale commissions, moving costs and if purchasing a smaller home, high stamp duty and land taxes –  so people considering downsizing should carefully calculate their impact.
    In addition, selling a large home and downsizing to a smaller property does not always release much excess capital (particularly in a capital city), so potential downsizers should check they will have sufficient funds left over for a worthwhile super contribution.

Important: There are several rules and guidelines effecting this strategy.  Anyone considering taking advantage of the new downsizing policy should seek professional advice on how it will affect their particular situation before making any decisions

For more Information contact Mark Digby at Maher Digby Securities Pty  Ltd - Financial Advisers – AFSL No. 230559. This document was prepared without taking into account any person’s particular objectives, financial situation or needs. It is not guaranteed as accurate or complete and should not be relied upon as such.  Maher Digby Securities does not accept any responsibility for the opinions, comments, forward looking statements, and analysis contained in this document, all of which are intended to be of a general nature. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend consulting a financial advisor