Disclaimer! The headline is not SuperGuide’s suggestion but the government’s latest convoluted idea for over-65s, which has become a reality. In December 2017, the ‘Contributing the proceeds of downsizing into superannuation’ measure became law.
From 1 July 2018, an Australian aged 65 years or over will be able to make non-concessional (after-tax) contributions into a super fund account (accumulation account), up to a maximum of $300,000, from the proceeds of selling his or her home. If a couple sells their home, they can contribute up to $300,000 each. The downsizing contributions will not count towards an individual’s annual non-concessional contributions cap.
Note: A person is only eligible for this measure if they have owned their principal place of residence for a minimum of 10 years, and the contract of sale is signed on or after 1 July 2018.
Background: In the 2017 Federal Budget (released on 9 May 2017), the government announced that it wanted to encourage “some older people to downsize from homes that no longer meet their needs and free up housing stock for young families starting out”.
I think the policy, as it has been announced, is convoluted, because it is indeed complicated, not generous enough, and the individuals choosing to sell their home will potentially lose some, or all, of their Age Pension entitlements (if applicable). In addition, the single person or couple will cop house-selling costs and then get stung with stamp duty when they purchase their smaller home.
Perhaps I am missing something, and perhaps there are some individuals who can see the merit of this measure. The government has only budgeted a cost to revenue of $30 million over 4 years, so it appears the government is not expecting the measure to be snapped up by thousands of retirees.
Let’s assume that the negatives of the policy don’t phase you, and you wouldn’t mind freeing up some cash and downsizing. You may then ask, what about the over-65s work test? Under this measure, the work test would not apply which means retired couples, or a single person, won’t have to worry about satisfying a work test before making super contributions.
Further, the contributions under this measure don’t count towards the annual $100,000 non-concessional contributions (NCCs) cap, so if a person satisfies the work test, they could also make additional NCCs up to the annual cap.
If a person is flush with super savings (and if they are, I can’t see them getting too excited about this new measure), that is, they have a total superannuation balance of more than $1.6 million, then they will still be able to take advantage of this new measure. Under the normal super rules, since1 July 2017, if a person has $1.6 million or more in super savings they cannot make any non-concessional (after-tax) contributions, but this restriction will not apply if a person aged 65 years or over, sells their home and makes non-concessional contributions to a super account.
For a more detailed explanation of the rules applicable to the downsizing and super proposal see SuperGuide article Contributing super by downsizing your home: 10-point guide.
For more information about how a person’s Total Superannuation Balance can affect super contributions, see SuperGuide articles Total Superannuation Balance: 7 reasons why your TSB matters and Super contributions: Bring-forward rule and your Total Superannuation Balance).
Does this downsizing measure sound familiar?
Clearly, Treasurer Scott Morrison does not have a long memory. In the May 2013 Federal Budget, the former ALP government announced a pilot program to assist senior Australians to downsize to a home more suitable to their needs, BUT the big difference with the ALP policy was that downsizing would NOT reduce the individual’s Age Pension entitlements.
Background on former ALP government policy: According to the May 2013 Budget papers, “from 1 July 2014, senior Australian homeowners who have owned their family home for at least 25 years and who decide to downsize will have the option to invest surplus funds (up to $200,000) in an account. The funds invested in the account and earned interest, will be exempt from the Age Pension means test for up to 10 years.”
The ALP version of the measure never became law, and the Liberals won the September 2013 election, and that was the end of that.
It seems that the same crew in Treasury who advised the ALP government, may be advising the Liberal government, but Treasurer Morrison is coming up with a meaner version of a rehashed policy.
And the other super measure in the 2017 Federal Budget, the First Home Super Saver Scheme is another example, of a rehashed, but meaner, Scott Morrison policy (for information on the FHSSS, see SuperGuide article First Home Super Saver Scheme a fizzer, again!).
For more information on the new housing and super measures see the following SuperGuide articles:
Related articles
February 12, 2018- December 18, 2017
- July 22, 2017
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Looks like we may have to downsize to a wee house were we came from where pensions are not asset or income tested.
Have been waiting for years to get a super break like this. Finally. Retrenched at 54, so never had the chance to top up super through salary sacrifice in later years. Am now 69 and thought the government’s previous proposal to drop the work test might give a chance to top up super from savings, but this was dropped. Many my age are looking to downsize anyway, so arguments like stamp duty and so on are irrelevant. Having to wait till July 2018 to sign a sell contract is a pain though. Bring it on.
I was extremely disappointed with the Liberal Government’s housing downsize “carrot” (yes, a carrot but a rather sickly one). For me the biggest issue preventing downsizing is stamp duty. The stamp duty involved in downsizing a home can easily equal a year of a pensioner’s income after tax. This makes it a significant stumbling block for myself and (I assume) many others.
In my own case, that stamp duty means the difference between getting a house that is merely a roof over my head versus a house that I might actually enjoy living out my senior years in (yes, I am at the relative budget end of the market and will probably need to take a full pension at some stage in my life).
So I would strongly suggest to the Federal Government that if they want to offer a proper carrot to downsizers, introduce a rule that anyone 60 years or older who downsizes to a home that is worth a set percentage of their existing home value (based on the actual market prices achieved in both of the sales) does not have to pay stamp duty. I think that will get far more people motivated and it will be a win-win for both Federal and State Governments. The Federal Government will love it because people approaching pension age will unlock a large amount of equity in their homes , the State Governments will love it because of the stamp duty they receive from the upgraders buying the old home and everyone will love it because it puts family homes onto the market which in turn will stimulate the entire property market as an upgrade domino effect takes hold.
Which brings me to another point. The 65 age limit is pointless. Make it 60. 65 is far too close to pension age to be stuffing around with superannuation contributions and downsizing a home is a heck of a lot easier at 60 than 65 as well! Allowing the 60 and over age group to benefit from downsizing provisions puts everyone approaching pension age on a far better footing and will make the financial benefits more potent.
But seriously, Scott Morrison’s downsizing proposals in the 2017 budget are the metaphorical equivalent of feeding a hungry lion with a chicken nugget!!
I notice you have to have had owned your own home for at least 10 years and in the previous ALP policy it was 25 years. am I missing something or is this as discriminatory as it sounds? What about if you have moved from house to house for work or like many from now on buy late in life. Whatever the reason is, it seems odd it is one house for 10 years. Why can’t they just say something like the property should have been purchased before retirement OR owned for 10 years plus.
Here is an idea out of left field for you.
Now I have not seen the fine print for the rules and legislation concerning the sale of house so the below may nt be possible.
But you could have a partial sale and become Tennants in Common. Your children or your Family Trust/Company could buy say $300K worth of the house. Stamp Duty etc needs to be paid.
You stay in your house and deposit the $300K into Super which is tax free. Though in some cases it might affect your Aged Pension lets assume you dont qualify any way.
Your Trust etc now get the benefit of tax free income and your children retain the interest in the family house minus the CG on their portion but your Primary Reridence portion will increase with CG over time as now.
They undertake to care for you at home as needed till your death or NH is required. Your Children or Trust get it all back upon your death and its a win win for all.
Yes real money needs to stumped up but in the long run one needs to do the sums and it could look very interesting.
I have a Testamentary Trust sitting on 400K . At 65 (I’m 60 now)I could do as describe above and move funds froma taxed Trust environment to a tax free Super one . Its a no brainer.
BUT by then the Govt might have woken up( change twice) and this senario might be blocked off and never eventuate.
Nothing surprises me any more. But first read sentence 2 above for this is important.
Regards
Mark
I am over 65, and my super has been converted to an allocated pension. How would this help me to downsize? I think this would be the case of most people who have had a super fund , and are now age 65 .
We won’t be eligible for any pension because we are fortunate enough that our assets will exclude us. Not complaining though, (even though we’ve paid high taxes our entire wirking career and won’t be entitled to anything)
While this scheme will negatively affect some people who are entitled to a part pension, it could actually help those with larger super balances who may not need help. It would seem that ScoMo’s real aim is to reduce the pension payments to those silly enough to take up his “generous offer” if they would be adversely affected. This policy will be self funding if the targeted people fall for it.
This could work for me, and a few others maybe.
– Can’t get a pension anyway.
– I plan to “downsize” with or without this incentive.
– Can’t put the non-concessional $100k’s into super because I don’t” want/can’t do the work test”.
– Super balance limit goes from $1.6m to $1.9m, if I’ve read this correctly.
Possible problems are the policy could change before 1/7/2018, and if I sell my current property now/soon can I still put the $300k into super in July ’18 or later.
Thanks for the info Trish.
Clo.
You haven’t read it correctly, the transfer balance cap stays at 1.6m.
How stupid is this proposal!
If I make a profit of $200,000 by downsizing and add it to my superannuation account, my age pension will decrease by $600 per fortnight (you lose $3 per fortnight for every $1,000 in assets above the threshold).
This is just a sneaky way of decreasing govt expenditure on age pensions.
Liberals, you’ve just lost the next election.
great comments why do you have to wait till 2018 for implementation should start today
As usual the Gov. has not thought this through ( What’s changed ). Surely Morrison is not that dumb. Maybe he is.?
My view, I don’t think that Mr Morrison expects nor does he really intend spending most of lowish funding set aside to fund the proposed policy. It is a ghost policy designed to fool to demonstrate an attempt (lip service) to be seen to be fair and ‘we are now a new-look Government with kinder hearts. I believe Mr Morrison hopes to surreptitiously scrape what he can from the promised funds by the next election to put toward either a slush fund or toward improving the deficit bottom line in order to once again, show how economically responsible and good fellows they are after-all, just in time for an election.
Smoke and Mirrors as attested by the confusion Trish displays in her article.
I agree with you Judith, lip service & Ceratodus has nailed it on head above
Will never trust Turnbull/Morrison Govt as from 1st July 2017 the Anti Detriment Payment abolished and no grandfathering for those who opted for the Anti Detriment Strategy rather than the Re Contribution strategy. This change is a retrospective tax.
I’m over 65 and I do not have a super fund – and so how does that encourage me to downsize?
Why bother? What a complete waste of the paper Treasury must have used to come up with this “non-incentive”. So as a couple we have $300,000 of assets assessed at the moment, so full aged pension of $34,000 is paid. We sell up pay $100,000 in costs and manage to put another $300,000 in super. So $600,000 is assessed and aged pension reduces to $13,000 in the 1st year. Should it not be mandatory for Australian Treasurers to have at least an average IQ before they take on the job.
Tana, Thank you for the glorious moment for laughter in your last sentence, you nailed it too.
Trish this is meant to be a publication for information. I don’t think it is appropriate 12 hours after the budget announcements that you present what you know so far in such a negative way and I would rather read about as much detail as possible at this early stage with out comments such as “this is convoluted and hare brained,” and wait for more details and make up my own mind based on finer details that should be reported accurately over the next weeks through publications such as this. For what it’s worth I think being able to add to super from your house sale is fantastic option and makes sense to me. Disappointed in your coverage of this budget so far.
Hi Penny
Thanks for your comment. You’re entitled to your opinion and I am entitled to mine, noting that the article provides all of the information that the government has provided on the measure.
Obviously, based on your view, there was sufficient information in the article for you to discern that the policy works for you.
We are glad we could assist.
Yes, perhaps harebrained was a bit strong, so we have removed that word.
Regards
Trish
I have always found your articles very informative and extremely helpful, and this one is excellent. Thank you for the clarification regarding the effect on pensions. I was very pleased to see you voice your opinion for once!
Thank you
Remember how the Governemnt induced people to put unlimited money into super and also induced people to retire with a part pension if they had a certain amount of assets.
A few years later the governement brought in that changed both positions with retrospective effect.
There was no grandfathering.
What guarantee do we have that the government will not do the same in the future with this proposal?
When it comes to trusting Governments remember the old adage “fool me one shame on you, fool me twice shame on me”
Seems like the government is already tinkering again with the super scheme when the current changes are not even in place. Will the scheme be changed on an annual basis?
At best, the ‘guvmint’ has made a hash of it by the sheer complexity (as only bew-row-cats can do), at worst, if all pensioners were able to take up this ‘kind’ offer, the market will be flooded with ‘old’ homes and the few buyers interested will be looking for bargain-basement prices; so much for helping ‘us’ Scott, but no thanks.
yeah, I’m having trouble with this too, (typical of a ScoMo plan)
What about if I already have $1.6m in my super account? Can I still add another $300k?
What if I have $400k? When I add another $300k my pension is reduced so I actually get less in the hand?
Obviously this is a federal initiative, but I still have another (say) $100k in costs (selling, moving, storage costs, and stamp duty, so how does this help me?)