July 18+ Selling Property and Contributing to Super

The laws relating to the budget announcement on "downsizing" and contributing up to $300k per taxpayer to super are making way through Parliament. Up to now little comment has been made as the laws werent available to review. Well I have had a look and they are terrific news for retirees and especially for those with property and wealthy. You will hear a lot about this one in the future. I

It is of limited use as the taxpayers involved need to be aged 65 or more AND
Need to dispose of a former / actual residence AND
Have owned it (subject to some exceptions) for 10 years AND
Make a super contribution of up to $300K each (subject to sales value)
BUT...It can only be used once in a lifetime. I guess thats to stop wholesale rorting.

The key issue is that someone aged 65+ an sell property and whack and extra $300K-$600K into super and allow it to work either tax free or low tax rate. The more wealthy a person the better this is for them.

But its got some really good issues in the detail. Like the proposal is named - It is intended to suit anyone who sells their home and downsizes but in reality its far broader and most useful than I initially realised. Downsizing is also probably wrong word to use. Someone with sufficient property / wealth in theory can sell their home and UPSIZE and still contribute and they wont even breach their caps !! There is nothing in the laws that says you need to downsize !! Provided you sell a former home you can use savings and can fully reinvest the actual home sale proceeds into a new home.

I wont dwell on the details and will briefly summarise why I say that its great
- Property can be owned by one taxpayer yet both can still contribute !!
- The $300K limit per owner is NOT tied to the property being sold in any way other than its selling price needs to be $300K+ for a single taxpayer or $600K for a couple.
- The downsizing name is incorrect. You can buy a bigger, better house and still meet the tests
- Does NOT count to any caps other than the member balance cap immediately after the contributions are made. Someone who has breached the $1.6 cap can still add $300k...but their pensions would be limited to $1.6m and the $300K would be subject to tax on earnings. The $300K would still be very tax effective for its earnings
- On death the funds contributed leave the super system tax free. No concerns for beneficiaries.

Some catches
- MUST be Australian property being sold
- MUST meet a 10 year ownership test which may be easily satisfied in many cases
- MUST have been their residence...But a very liberal test is used. Even a partial main residence CGT concession is sufficient. eg reside in property one week in ten years and its met.
- 90 day period to make the contributions after sales settlement occurs BUT here is the best bit...The proceeds dont even have to relate to the sale !!
- One property sale is eligible in a lifetime. Note that one per spouse may not be allowed as a non-owner spouse is deemed by the new rules to have an interest even if they dont (a great benefit IMO)
- Sale contracts dated 1 July 2018 and after only. Not based on settlement.

Expect to hear more about this one and retirement tax planning in the future.

 

Still needs to get through the senate. What do you think the chances are?

 

Any possibilities of using it on rental properties by moving in for a while before the sale?

 

What if the seller does not have a super account? Can they start one and contribute $300k? Age is over 65 and retired for many years but no super.

 

What if you're downsizing your IPs?

 

What about the tax imposed when balance left to non-dependents? (16% ?).
The definition of dependents is quite narrow, most adult children don’t qualify.
Has that been abolished?
Marg

 

• Is there a requirement to buy something else as a ppor or ip? Ie can you simply sell and rent eg retirement village/nursing home/permanent resident on P&O or Cunard?
• Does the purchase need to be resi or can it be CIP?
• Do you still have to pass the work test?

 

Very good.

 

Yes. The physical act of adding funds is the contribution relevant to the new rules. Huge number of funds to choose from

 

It is a non concessional amount. These arent taxed to any beneficiary.

 

1. Strangely. None. You can downsize to a tent or your kids house or a retirement village if you like.
2. See 1 above. There is no requirement to actually downsize by buying again. You could sell and still do it.
3. No.

 

Perhaps....You still MUST sell a property that was your residence. Lets say thats $300K and you owe $300K. But you have a IP that is worth $600K and you owe $300K.

You could sell both. Use proceeds in cash from the IP and it would meet the rules. Although I suspect you do need to ensure that the contribution is made the day of or after the sale of the former home and not before. (It is silent on that issue)

There is no requirement that actual proceeds come from the former home sold. It could be paid by a spouse or a gift or a inheritance etc.The laws specifically say the actual paymnet can be made by anyone - Only the member can claim the contribution as a downsizer amount though. This may stop the issue after death !! Provided you sell a home you used to reside in its OK.

 

It's very complex for our dumb nuck senate crossbenchers so it'll either be a resounding yes or a no.

 

Sounds like a strategy to me - pity that I'm not old enough to do it just yet.

 

Its been through Both Houses as seen in the progress here : Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 1) Bill 2017 – Parliament of Australia

Its a small Bill that also includes super saver measures (yawn)
ALP agreed it supports both. Only the LDP (The Other Liberal Party) raised some issues that ist relented on.

Its actually been passed in both houses. Senate added a review after 18 months and that wont pose a problem. The lower house agreed to that. Just a formality unless Parliament is dissolved. GG just needs to go to work and sign it