Govt's super, downsizing measure open to manipulation

The current contribution rules for people aged 65 and older and the restrictions on non-concessional contributions for people with balances above $1.6 million will not apply to contributions made under this new downsizing cap.

PwC director of private clients Liz Westover said she is concerned the downsizing concession will not actually solve the problem it’s intended to resolve.

“I’m not sure whether it’s going hit the mark on the right incentives for people to actually downsize,” said Ms Westover.

The measures, she said, would have been better targeted around social security and the age pension.

“I wonder whether or not the ability to put more money into super for someone who’s over the age of 65 is really going to provide the right incentives to downsize,” she said.

Pereptual Private senior manager of strategic advice Colin Lewis believes the measure will “only really help a particular market niche that wouldn’t be affected by the aged pension”.

Mr Lewis said it is unclear how this will operate at a practical level with the “devil likely to be in the detail”.

"The thing is how is it going to work in practice? You might have someone who’s wealthy, got money sitting in the bank or in investments. They’re too old to put the money into super, or not eligible to put the money into super. Now they might say, well I can actually free up some capital in the house by buying another property, with the capital I’ve already got, and put that into super,” Mr Lewis explained.

“So you don’t necessarily need to downsize in order to get the benefit of putting the money into super from the for sale proceeds.”

Mr Lewis said there may therefore be planning opportunities or advice opportunities for this niche in the market, “but it’s not actually there for the purposes of what the government is intending it to do”.

“With most things there are integrity measures, and if the integrity measure is the value of the new place has got to be X dollars less than one that you’re in, then well who monitors that?” he said.

“Otherwise you could have someone with a $2 million mansion buy another place with the freed up capital they’ve got and put the remainder into super.”

However, head of BT's technical advice team, Bryan Ashenden, noted a positive in this measure is that it gives older Australians an opportunity to engage with their superannuation where they may not have previously.

"Some people have never had the ability to put money into super, they have done all of their investing outside of the super system," he told SMSF Adviser. 

"This gives them a change to use the super system for the purpose of their retirement," he said.