Advisers reminded on major consideration with downsizer
With the eligibility age for downsizer contributions soon dropping to age 60, advisers have been reminded on the impact of this strategy on the age pension.
In February, the government passed a measure to reduce the eligibility age for making downsizer contributions from 65 to 60 years, which will apply from 1 July this year.
Downsizer contributions allow eligible individuals to make a downsizer contribution into their superannuation of up to $300,000 per person ($600,000 per couple) from the proceeds of selling their home.
In order to make the contribution, the client must meet the eligibility criteria, which includes the proceeds from the home being either exempt or partially exempt from capital gains tax under the main residence exemption.
Speaking at a recent event, SuperGuardian education manager Tim Miller said that while downsizer contributions may be a good idea for clients with no asset-test issues in relation to Centrelink, for those who are close to qualifying or do qualify for the age pension, it can be quite a problematic strategy.
“[The money] is going from an asset test-exempt environment, being the primary residence, to a sell-down,” he explained.
He noted that while Centrelink provides a 12-month exemption from the asset test, this is not the case for the income test.
Mr Miller said the downsizer contributions measure might need further review from the government if they want to encourage people to downsize and open up the market.
“Strategically, the majority of people that use the downsizer contributions are just doing it to put more non-concessional money into super from an estate planning point of view to give it that protection,” he said.
“It’s a hard-to-swallow strategy for me. We all like the idea of putting more money into super, and for those that have no asset-test issues from Centrelink, then it’s a no brainer that they’re going to put money into that environment, whereas for those who are in the housing, that’s more affordable for those trying to get into the market, then the incentive is not actually there to do it necessarily.
“I’m not suggesting we go back to having more asset test-exempt income streams from a retirement point of view, but surely there could have been more mechanics put into to ensure that the money was somewhat protected.”
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.