Favourable conditions for retiree property sellers needing super boost
Retirees thinking of selling up to boost their super balance should consider making a downsizer contribution while property supply is still tight and auction clearance rates remain high, according to HLB Mann Judd personal wealth management director, Prue Cheeseman-Goodes.
Ms Cheeseman-Goodes said a couple may be eligible to make a maximum non-taxable downsizer super contribution of $300,000 from each spouse if they are over age 55, but she warned the deposit needs to be made within 90 days of settlement of a sale or part sale of their home.
“Super remains the most tax-effective structure for retirement savings, with a balance of up to $1.9 million currently able to be used to start a tax-free pension, where there is no tax on earnings in the superannuation environment and no tax on withdrawals,” she said.
“Unlike other contributions, it doesn’t matter if you are retired or what your super balance is to be able to make downsizer contributions. This may be the last significant contribution you can make to boost your balance for retirement.”
To qualify for a downsizer contribution, a person – or their spouse – must have owned a home for at least 10 years and lived in it as their main residence at some point during that time. The downsizer contribution can only be made once in a lifetime, and the home must be in Australia and not be a caravan, houseboat, or other mobile home.
Ms Cheeseman-Goodes said most of the take-up of downsizer contributions has come from those who are already over age 65, as there are a number of factors to consider when determining if the contribution is appropriate.
“The first thing is whether super can be accessed. For example, if you’re 55 and put all the money into super as a downsizer contribution, only to realise you need it months later, you won’t be able to access it,” she said.
“Secondly, people need to consider what other types of super contributions are available, and whether it is more tax advantageous to make a concessional or non-concessional contribution before considering the downsizer contribution.
“For example, if a client had a total super balance below $1.9 million in super, we would first consider using the non-concessional contribution to boost their balance, as this can no longer be used once they are above that total super balance.”
For clients with a lot of money outside super, Ms Cheeseman-Goodes said using the downsizer can be used in conjunction with other contributions to potentially transfer a lot of wealth in one go.
“For example, if it was a big sale, you could put $27,500 as a concessional contribution, as well as $330,000 as a non-concessional bring-forward contribution, on top of the $300,000 downsizer contribution,” she said.
“The other consideration with downsizer contributions is the Age Pension assets test and Commonwealth Seniors Health Card eligibility. Because the home is exempt from those tests, it won’t affect eligibility.
“But once you sell your home, the proceeds are going to count towards your income and assets test, even if they go into superannuation. So, it is important to understand how selling your home might affect your social security.”
Property sellers considering making a downsizer contribution should make sure they report it to their super fund, she said because failure to do so may render the contribution invalid, and the fund will then default to treating it as a non-concessional contribution.
This may then cause an excess if the client wasn’t able to make a non-concessional contribution that year.
