Downsizers, approach with caution

May 30, 2017

Home owners aged 65 or over will be able to make non-concessional contributions of up to $300,000 into superannuation, from the sale of their primary home, as long as they’ve owned it for at least 10 years.

The proposed policy aims to free up established housing supply and encourage long-term home owners to downsize, allowing retirees to free up equity held in their home.

Mercer financial adviser Sean Cummins says the policy will likely benefit “a pretty narrow band of people” – essentially those who are asset rich, cash poor and who can release a lot of capital by selling their home.

“It’s not a silver bullet or a simple exercise but it does provide options, particularly for wealthier people with large super balances and assets under their own name,” Cummins said. “If you’re not paying income tax and you have few or no other assets in your own name, this is unlikely to be a strategy you would consider.”

Even for it work to for that narrow band, Cummins says downsizers need to have an appropriate option in which to move.

“Downsizers will often prefer to stay within their local neighbourhood to free up a significant amount of capital you really need to be willing to move to another market; a less expensive  suburb,” Cummins says. “Home prices are often just as much about location as the size and type of house so if you want to stay in the same area, you’re probably going to pay nearly as much for the new home as the one you sold, especially after transaction and stamp duty costs are taken into consideration.”

Cummins says the scheme is “interesting” but warns retirees to approach it with caution.
“Your principal place of residence is not counted against the assets test but if you sell it and put it in super, that money is counted so there could be Centrelink implications,” Cummins says. “It’s a strategy that involves different tax vehicles and they have to line up properly at the right time for you to get any benefit; it gets complicated very quickly.”

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