Super-duper ideas

It feels like the new year and new decade just started, and somehow we are already in February. 2020 is well underway!

This year we will focus on releasing a series of blogs on different topics. The first of these series focuses on Superannuation. Super is such a critical aspect of all our retirement planning and strategising that it seemed appropriate that we begin with it.

The superannuation series will span over four blogs that will cover a host of super-related topics, questions and strategies – such as downsizing your superannuation, super catch up, self-managed super funds and more.  First up:

Downsize to upsize your super – Downsizer Provisions

Effective 1st July 2018, recognising that a lot of senior Australians may have their equity trapped in their homes and not enough super built up, the government introduced downsizer contributions.

According to the rules, individuals aged 65 or over are able to contribute up to $300,000 each to their superannuation from the sale of their primary residence, provided they meet all the conditions below:

  • Must be 65 years or older (no upper age limit);
  • The contract for sale must have been exchanged on or after 1st July 2018;
  • The maximum amount that can be contributed is equal to the sale proceeds or $300,000, whichever is lower (i.e. a couple could contribute);
  • The residence being sold must be the primary residence of the person for 10 years or so prior to being sold (may be owned jointly or as tenants in common and should qualify for at least partial CGT main residence exemption);
  • The contributions must be made within 90 days of receipt of the sale proceeds;
  • The individual must submit the appropriate form to the superannuation fund where the contributions are made.

The downsizer contribution can be made irrespective of the balance in the super fund, and is also not subject to any contribution caps. So even if an individual has made the maximum allowable concessional ($25,000) contributions and non-concessional ($100,000) contributions cap (2019/20 financial year) to the super fund, they are still able to contribute up to $300,000.

It is important to remember that whilst the total superannuation balance does not impact the ability to make downsizer contributions, the contribution itself is counted toward the total super balance as on the 30th June next year and so this impact will need to be considered in any strategy undertaking downsizer contributions.

Downsizer contributions provide a great opportunity for clients that may wish to free up and access the equity in their homes by building a more liquid and diversified asset base via their superannuation.  However, the option must be evaluated in each individual case and may not necessarily be appropriate for all, for instance for someone whose super balance exceeds $1.6 million with limited investments outside the super.

As with any legislation, there are several details to consider and keep in mind – particularly around the primary residence rule – and you are best served speaking to a financial advisor or specialist to assess if this may be an appropriate strategy for you.

Niyati Khanna | CFP Professional, Chartered Accountant (ICAI), MBA (Finance & Strategy) is a representative of Alman Partners Pty Ltd, Australian Financial Services Licence No: 222107.

Note: This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person or entity. Accordingly, to the extent that this material may constitute general financial product advice, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. This is not an offer or recommendation to buy or sell securities or other financial products, nor a solicitation for deposits or other business, whether directly or indirectly.