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Would $300k into super make you want to downsize?

“This is attractive to people considering downsizing anyway. But it doesn’t seem to be pushing anyone who wasn’t already thinking of selling their home down that path,” says Kanoniuk.

Laws are before parliament that should give self-managed super fund (SMSF) members a one-off opportunity to contribute up to $300,000 to their super – or $600,000 for a couple – from the proceeds of the sale of their house. 
 
The concession was announced at this year’s federal budget as a sweetener following the introduction of the $1.6 million transfer balance cap that limits how much money people can keep in the tax-effective super environment after they retire.

There are a number of boxes trustees need to tick to take advantage of the $300,000 downsizing measure. For instance the property must have been owned for more than 10 years. Trustees also can’t dip into other funds to contribute the maximum amount if the property sale doesn’t fetch $600,000.

“So the maximum contribution is limited to $500,000, or $300,000 for one member and $200,000 for the other, for a couple that sells their home for $500,000,” explains Rhiannon Kanoniuk, director and practice principal of financial advice firm Pekada.

Also, members must be aged 65 or over. But they don’t need to meet any other age- or work-based tests. 

Additionally, the property must be in Australia and cannot be a caravan, mobile home or houseboat. It must be eligible to at least partially receive the CGT main residence exemption. Only sale contracts entered into after 1 July 2018 will be eligible.

“Homes that may have been used as an investment at some point may be eligible,” advises Kanoniuk.

Damian Liddell, a financial adviser with Browell’s Financial Solutions, says most of his self-managed super fund (SMSF) clients don’t intend to avail themselves of the measure.

“This is unlikely to prompt people to downsize. Most people are comfortable in their own home and reluctant to move. I see it as a secondary benefit and, in a lot of cases, an afterthought for people with surplus funds after downsizing.”

“Using the proceeds of the home sale measure you’ll still be able to make non-concessional contributions of $300,000 to your fund. But trustees need to be aware, even though that’s the case, the measure does not extend to amounts transferred into the pension phase of super, which is still limited to $1.6 million,” he adds.

Like Liddell, Kanoniuk’s clients are thinking through the implications of the $300,000 downsizing measure. 
 
“This is attractive to people considering downsizing anyway. But it doesn’t seem to be pushing anyone who wasn’t already thinking of selling their home down that path,” says Kanoniuk.

“Downsizing is often a conversation that has a heavy emotional overlay, but also a lot of financial considerations. These include funds required for a new home, stamp duty, moving costs and any effect on Centrelink entitlements,” she adds.

Trustees need to be aware of Centrelink implications if they sell their home. A principal place of residence is currently Centrelink exempt, providing the home is built on less than five acres. 

“Having surplus funds after downsizing means your Centrelink-assessable assets will increase. As a result, people will likely receive less age pension or perhaps lose the age pension altogether,” Liddell says. 

A raft of other factors must be taken into account when looking at this measure, including how much additional income can be derived as a result of having more money to invest, as well as tax implications. 

It is likely the member will have lower living costs including council rates, home insurance premiums and utilities as a result of probably owning a smaller property after the sale. 

Says Liddell: “These things all need to be factored in to decide if you will be better or worse off.”

Assuming the measure goes ahead, Kanoniuk says it will be important for SMSF trustees to ensure the sale meets all the new law’s provisions.

“There will be a requirement for the contribution from the sale to be made within 90 days of settlement. A notice must be provided prior to or with the contribution notifying the fund that it is from the proceeds of downsizing. 

“These administrative requirements are sometimes where members come unstuck, so it is important SMSF trustees and members comply with the dates and do their paperwork,” she adds.

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