7th Apr 2018
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What you need to know about boosting super by downsizing
Author: Olga Galacho
Beginner’s guide: downsizing rules

There are just 80 sleeps left until downsizing retirees can cash in on generous rules for contributions to superannuation.

Judging by your responses to two of YourLifeChoices’ recent surveys, few members are losing any sleep over whether they should sell the family home for something more modest.

And last December, a whopping 84.35 per cent of respondents to our Insights Survey 2018 said they were not considering downsizing.

Despite these responses, in the March survey, 38.6 per cent of respondents said they would downsize if they needed to supplement their retirement income. This income-stretching strategy was preferred over borrowing and other financial products.

Following the announcement of the downsizing/superannuation initiative by the Federal Government in the last May Budget, YourLifeChoices analysed the pros and cons, and concluded that there may be hidden risks for those who sell their homes.

As with any major money decision, before you commit to selling, first take into consideration the advice of your financial expert.

For those who are undecided, here is a guide to how the Government’s incentive works.

From 1 July this year, Australians aged 65 or older can contribute up to $300,000 (or $600,000 if a couple) of the proceeds of the sale of their home into their super fund. The contribution is considered non-concessional, which means it is not taxed.

While it does count towards the transfer balance cap of $1.6 million that individuals are allowed to have in a fund, if you already have this figure, you can still add up to $300,000 to your nest egg and not be taxed extra.

The extra funds are not tax deductible and they will be considered when assessing eligibility for the Age Pension.

If you do not have super and you would like to contribute your sale proceeds to a fund, you can join one.

It is important to stress that no pensioner will be forced to downsize and even if you do sell your home for a more modest one, it is not compulsory to put any extra money into your super fund.

Those who do choose to take up the downsizing incentive have to meet a number of eligibility rules. According to the Australian Taxation Office, you are eligible if you answer ‘yes’ to all these questions:

  • you are 65 years old or older at the time you make a downsizer contribution (there is no maximum age limit)

  • the amount you are contributing is from the proceeds of selling your home where the contract of sale was exchanged on or after 1 July 2018

  • your home was owned by you or your spouse for 10 years or more prior to the sale
  • your home is in Australia and is not a caravan, houseboat or other mobile home
  • the proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax under the main residence exemption
  • you have provided your super fund with the downsizer contribution form either before or at the time of making your downsizer contribution
  • you make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually the date of settlement
  • you have not previously made a downsizer contribution to your super from the sale of another home.

If you are considering the downsizing option, you will have to contact your super fund to check that they accept downsizer contributions and complete a Downsizer Contribution Form. The form, which is yet to be made available, should be submitted with your contribution to the fund. If you are splitting your $300,000 among different funds, a form will need to be completed for each one.

What reasons do you have for wanting to downsize or not? Do you think the superannuation incentive is enough? Or are you concerned that boosting the balance of your super will affect how much Age Pension you receive?

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    COMMENTS

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    Sundays
    11th Apr 2018
    10:23am
    People receiving the OAP need to think very carefully. The Super will be classed as an Asset, so keep the threshold in mind. In addition the amount will also be deemed which could be catastrophic for those assessed under the Incone rules.its a good scheme for the fully self funded retirees.
    TREBOR
    11th Apr 2018
    10:27am
    I think I like the Universal Pension Scheme with no assets test, and etc, etc.. as outlined times many.
    Rosret
    11th Apr 2018
    12:53pm
    Agreed Trebor.
    Rae
    12th Apr 2018
    6:17am
    TREBOR how then would you discourage people from spending all their money on expensive lifestyle items like mobile homes, caravans, huge SUVs, boats and so on that are nice but do not contribute income in retirement and are expensive to own and maintain?
    Triss
    12th Apr 2018
    5:16pm
    They would not have the money to maintain those toys in retirement so they'd gradually be got rid of.
    I would think that a universal pension would persuade people to put more money by. The pension is a basic living so people would put some money aside to give themselves a few luxuries in retirement which the pension couldn't provide.
    TREBOR
    11th Apr 2018
    10:26am
    Lessee now - $300,000 @ 5% annual return = $15,000. $15,000/26 = $577 (close to) a fortnight...... under The Good Colonel C'Link's ways - that's $577 - (allowable) $168 = $409. 50c in the dollar on $409 = $204.50 per fortnight Aged Pension reduction.......

    Pension $907.60 pf - $204.50 (rounded) = $703.10 Pension... + $577 a fortnight = Total Retirement Income = $1210.10.

    Must be a serious kicker in there.

    a) You need to prepare and pay tax returns on income above pension.
    b) Assets test remains, so be wary of future.
    c) Trust nobody wearing a government suit.
    Old Geezer
    11th Apr 2018
    2:05pm
    Unless you have a considerable income outside super around about $100,000 plus pa I can't see that makes any sense financially. Throw in Shorten's franking credit proposed policy and it's even worse.
    johnp
    14th Apr 2018
    8:36am
    A terrific explanation on the sums to consider Trebor, all credit to yourself :-)
    Rae
    11th Apr 2018
    10:41am
    No way would I ever consider this. Seeing it takes all of that $1.6 million to safely make the equivalent of the old aged pension and concessions you'd have to be insane to sell and put money into a super fund now.

    It might have been a good idea before the GFC but times change don't they?
    TREBOR
    11th Apr 2018
    11:15am
    Ah, yes - I forgot about the concessions...
    Rosret
    11th Apr 2018
    1:13pm
    I'd rather the $1.6m than being the government's minion.
    Sundays
    11th Apr 2018
    1:53pm
    It’s for people who have a spare $300-$600k they want to park,in a tax free superannuation environment.
    Old Geezer
    11th Apr 2018
    2:02pm
    One would need quite a sum outside super earning lots of income to make putting it into super a good financial decision. One for the wealthy I guess.
    Rae
    12th Apr 2018
    6:34am
    You'd need to be a brave soul indeed to pop $300 000 to $600 000 into Super controlled by Governments desperate for money now the last of the privatisations are done and the realisation of higher costs is sinking into Treasury figures.

    There is no saying what new rules and constraints they'll make to Superannuation.
    Triss
    12th Apr 2018
    5:18pm
    I agree with you, Rosret.
    Old Geezer
    11th Apr 2018
    10:55am
    Why anyone would want to put money into super in retirement makes no financial or any other sense at all to me.

    You can also upsize and put money into super as well but why do it if you get no benefit in doing so?
    Rae
    11th Apr 2018
    11:57am
    Og The dumb bunnies haven't twigged that the past budgets and future plans have made Superannuation a loser's bet. They are always behind the ball on these things.

    Rather than see the consequences they wait until the results slap them in the face.
    Rosret
    11th Apr 2018
    12:58pm
    Rae its easy to see that in hindsight. Its not so much dumb bunnies just the ones who chose the wrong path on misleading future projections.
    As you see the government is still holding out the carrot.
    Rae
    12th Apr 2018
    6:49am
    Rosret I was a dumb bunny that fell right into their promises because I trusted them. No longer. I'll be betrayed once only.

    The entire strategy behind saving over time using compounding has been broken.

    Firstly by taxing on the way in and in the fund and then by changes to asset and income tests that cut incomes substantially in a current investment climate where achieving returns is increasingly difficult.

    I include myself in the bunny description but thinking about whether Superannuation is still viable rather than just relying on the propaganda and belief is a good idea.

    We all make huge gambles through life and they don't always pan out because of " hindsight being a grand thing". I've had my share of misfortune and just plain stupid decision making.

    Unless we actually learn from that the lesson is wasted.

    I've learned not to trust the Government or to believe a word they say.

    Have any future projections been anywhere near the actual result in your experience Rosret because they have always been way out in mine. I take no notice of experts predictions whatsoever but do try to consider the likely chances given the current situation, data and policy settings.

    The dumb bunnies I was referring to in the comment are the government representatives and funds that have not seen the damage to people's confidence and trust in a constantly changing system of saving.
    ozimarco
    11th Apr 2018
    1:12pm
    How is this supposed to help self-funded retirees who have already converted all their super into an account-based pension? They do not have the option of putting the proceeds of a sale into their super because they no longer have a superannuation account. The scheme only works for those whose super is still wholly or partly in the accumulation phase.
    Rosret
    11th Apr 2018
    1:16pm
    Yep. It does seem a bit odd.
    So rules are different for someone who has a house over someone who doesn't.
    Could it be they just want the elderly out of their lovely city home so they can build more apartment blocks?
    TREBOR
    11th Apr 2018
    2:53pm
    Maybe you need to get after your rep to make it part of the deal that you can create a super fund with that money... not just ad it to an existing one.

    As usual - in politics there is the initial position - then the fallback position, then option three and four - and then a clear line of escape.

    NEVER accept their first offer.
    fearlessfly
    11th Apr 2018
    1:19pm
    Well, what a pack of DORKS to come up with this ! I would imagine that a lot of retirees over 65 have, like myself, converted our super into an allocated pension, so we do not actually have a "Superannuation Fund" as such. Also, the 10 year rule is a bit extreme, we've been in this house only 5 years but we are now downsizing into a "Lifestyle Retirement Resort". So this amazing new initiative means absolute diddley squat to us !
    Old Geezer
    11th Apr 2018
    1:43pm
    You can start another super fund.
    fearlessfly
    11th Apr 2018
    2:39pm
    Thanks for that tip Old Geezer, I did not know that you could start a Super Fund after age 65 retirement.
    Old Geezer
    11th Apr 2018
    2:50pm
    Yes you can> Normally you have to pass the work test but since you can put money into supper if you sell your house and buy another one it stands to reason that you must be able to open a super fund.
    BElle
    11th Apr 2018
    2:59pm
    I have yet to work out how "down sizing" is a financial win. The costs of relocating. legal and stamp duties etc. To say nothing of reducing the value of your assets, is almost never in anyone's favour.
    fearlessfly
    11th Apr 2018
    3:02pm
    You can avoid the insidious and crippling stamp duty ripoff if you downsize into something like a Gemlife resort - www.gemlife.com.au

    This lifestyle is not for everyone I agree.
    Old Geezer
    11th Apr 2018
    3:03pm
    Then they get the lot when you depart this mortal world.
    johnp
    14th Apr 2018
    8:44am
    Does anyone like old geezer or fearlessly have info re Gemlife's terms and conditions on payments like entry and exit etc. Couldnt quickly see that on their website. Another problem when retired is need for handy access to such as hospitals. Also one doesnt want to fall into the trap like AVEO !
    fearlessfly
    14th Apr 2018
    12:46pm
    Hi johnp, in answer to your question ...

    * NO Entry or Exit fees
    * On exit, Sell your own house & retain 100% of any capital gains
    * NO hidden legal fees
    * NO refurbishment fees
    * Pets welcome
    * Five star resort facilities
    * Caravan & Boat storage
    Old Geezer
    15th Apr 2018
    4:18pm
    Now that's what they tell you to get you in but what is really in that contract?

    Also you only own the building and buildings depreciate so where is the capital gains?

    Also what does it cost a week in fees and are they capped by year or just go up as much as the like to put them up?

    What about the rules and penalties for breaking them? I certainly would break all the rules plus some extras within the first week.
    fearlessfly
    15th Apr 2018
    5:41pm
    I have both the Building Contract and the full Site Agreement Contract and the items I mentioned above ARE spelled out in detail exactly as printed in their promotional materials, and as mentioned above. The weekly fees are only increased once a year according to CPI, this is spelled out in the contract. I am at a loss to understand Old Geezer, why you would be breaking the rules ? You certainly sound like the type of person we would NOT want at our resort !

    Queenslanders and wannabe Queenslanders should also look up the "Living Gems" lifestyle retirement resorts.
    shirboy
    11th Apr 2018
    3:14pm
    I think the government want more funds into super so that they can mishandle it. What about Turnbull promising America 3 trillion dollars to help with their infrastructure.
    Rosret
    11th Apr 2018
    9:07pm
    And yet they have put limits on how much you can put in super. It contradicts their latest regulations.
    So it feels like a juggling act between the banks wanting our money, the super fund managers wanting our money and the developers wanting our land.
    ex PS
    12th Apr 2018
    8:46am
    Before downsizing think about why you are doing it and whether by downsizing your home, you are downsizing the quality of your life.
    To some people downsizing will make their lives empty and miserable. I could not imagine moving from a large block to a quarter acre or a flat, I would go stir crazy.
    Triss
    12th Apr 2018
    5:29pm
    Sometimes downsizing can add to the quality of life, ex PS When we moved into our present home nearly 20 years ago it was a laid back suburb where people said 'hello' to you in the street. High rises were built, high street shops died and were replaced by shopping centres, traffic is horrendous and it takes you 3 times as long to get where you want to go. We're scuttling off to a place far away where life is quiet again.
    Greg
    14th Apr 2018
    9:44am
    We up-sized, city to country, still had funds left over to enjoy or pass on.
    fearlessfly
    14th Apr 2018
    12:48pm
    Hey ex PS, you look like our beloved deceased Westie Lucky, reincarnated!


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