Recent Super Law Amendments - Downsizing into Super from aged 60

Parliament has just passed the amendments as proposed in the 21 Budget - reference Treasury Laws Amendment (Enhancing Superannuation Outcomes For Australians and Helping Australian Businesses Invest) Bill 2021 – Parliament of Australia
This includes some changes that could impact property owners and investors that may be planning to exit property and place funds into superannuation.

The downsizing change from 65 to 60 and the flexibility of the rules which mean you have to own the property for 10 years plus the proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) means investors could consider using the sale of an investment property to top up super without concern on the superannuation limits - as long as the property has been their PPOR for some period of time. Of course seek advice on this but useful to consider these rules if approaching 60 (or post 60) as part of your retirement strategy. More details on the ATO site here (substitute 65 to 60 from 1st July 22) - Downsizer contributions for individuals

We were planning to sell our previous PPOR that is now rented prior to aged 60 but will now likely plan to hold on to age 60 so that we can maximise our superannuation contributions. Yes it will trigger some CGT as we will go over the 6 years CGT exemption and we don't plan to move back in but I think the longer term gain of having more in super will make sense as we have some investments outside super as well.

Summary of changes passed 10th Feb.
This Amends the: Superannuation Guarantee (Administration) Act 1992 to remove the $450-a-month threshold before an employee's salary or wages count towards the superannuation guarantee; Taxation Administration Act 1953 to increase the limit on the maximum amount of voluntary contributions made over multiple financial years that are eligible to be released under the First Home Super Saver Scheme from $30 000 to $50 000;
Income Tax Assessment Act 1997 to: enable individuals aged 60 and above to make downsizer contributions to their superannuation plan from the proceeds of selling their home;
apply the work test to individuals aged between 67 and 75 who claim a deduction for personal superannuation contributions and allow such individuals to make or receive non-concessional superannuation contributions under the bring forward rule;
and enable superannuation trustees to choose their preferred method of calculating exempt current pension income when they have member interests in both accumulation and retirement phases for part, but not all, of the income year; and Income Tax (Transitional Provisions) Act 1997 to extend the temporary full expensing regime to 30 June 2023.

 

Nothing about concessional contribution cap?

 

From a google search - Indexation of the concessional contribution cap is based on the full-time average weekly ordinary times earnings (AWOTE) which is issued twice a year. Indexation occurs in increments of $2,500, therefore the indexed value needs to exceed $27,500 for the annual concessional contribution cap to increase.
The December AWOTE will be released in late Feb 22. Also, note that the ATO officially releases the concessional cap details for future financial years in late March of each year.

 

There was no 2021 budget announcement to change caps. Indexation automatically applied (from 1 July 2021) to raise this from $25,000 to $27500 (CC) and $100K to $110K (NCC) which also increased the maximum bring forward sum to $330K (NCC).

The legislative changes in the budget included

• Downsizer age changes consistent with the....
• Age based work test changes which exclude more people from that specific work test
• First home super saver increased savings amount
• Removal of the "minimum earning rule"which had excluded some casuals earning under $450 a month from employer superannuation guarantee contributions. The law change removes a minimum earning base.

The downsizer etc is effective from 1 July 2022. I would have preferred if they had made the change as retrospective from the date of assent. It may have allowed many more people to consider eligible property sale and contributions now, rather than waiting. Especially those aged 60-64 in the period between now and 30 June 2022.

Tax strategy tip for those aged 58+. Have you considered the benefit of MOVING INTO a rental property as your main residence to ensure it meets the requirements for downsizer use ? This strategy may make a property eligible. Tax advice on how this may impact CGT is wise before doing so as the property you move into most likely will not have a detrimental change. The absence rule could also be used to restore the staus quo and leave no adverse tax imapcts for both affect properties. ISo it likley wont save CGT ...but it may mean VERY LARGE amounts under the concessional catch up and non-concessional downsizer amunts AND other general non-concessional amounts under the bring forward rule can be used to put funds into a tax sheltered position. And this eligibility even extends to a spouse who doesnt own a portion of the property!!

 

I guess as well as a tax strategy it can become a retirement planning strategy for any age group but especially those approaching 50 to ensure they can meet the 10 year ownership rule. The other aspect is that as long as the property is partially exempt from CGT it would qualify.
So does this mean I can have an investment property -> never lived in it, owned for 10 years and now I am aged 59 and 6 months -> but decide to put it on the market. I dont rent it for 6 months prior to the sale (no income and no expenses claimed) and I have renovations done. Does that mean for that 6 months it is CGT exempt and then it would qualify for the proceeds to be placed into my Super? - noted that the property I was living in would then not be my PPOR for this period and CGT would apply if/when I sell it.
Or if this did not apply, If I move into the property for 6 months - and it does become my PPOR (change addresses ect) for that period then it would be eligible for the proceeds to be used the downsizing contribution.
On current projections it looks like we will hit the NCC bring forward limit for TSB just before 60 but we have 4 properties so looking to offload one before 60 to maximise NCC and CC and then another at age 60 to utilise the downsizing rule. 3 will have been held for 10 years at age 60. 1 has been PPOR the other 2 investment.

 

No. It would eman you MOVE INTO the IP as a main residence (key issues to be met) and move out of the former home. The absence rule can be used but not for every day. Perhaps 3 taxable days out of say 6mths exemption? But I wouldnt move in just for 3 days. It wont usually meet the conditions. Now you may meet the "partially exempt" rule for 3 days out of 11 years. It wont do much at all for CGT but it makes it downsizer eligible. You also may not want to rent the former home out in that period.

I would be considering tax advice and a tax plan for property owners. To consider CGT, contributiosn elements that could save tax and also tax savings on reinvestmnet into super etc.
I wouldnt be waiting until its sold. Pre-plannning is iportant. The downsizer rule allows ONE downsizer contribution per taxpayer. You cant top it up with a second or do two. But you may be able to do one per taxpayer per property based on member ages.

 

It would only be exempt, partially, if you moved in and established it as your main residence.

 

In my example I indicated there is no need for the full 6months to be subject to the change of CGT. Merely a choice. So why not choose 3 days ? Or one. Thats the point of the post. It indicates a strategy to elect this. The CGT test to the downsizer requires at LEAST one day is subject to the main residence exemption in the whole period of ownership. It could calculate out to be 0.00%. I have a example below. There is no test of materiality or minimum period. I would argue maximising the other property which has been the home as exempt is a desired outcome.

Example of using TWO days in 10 years indicates it wont mathematicaly affect CGT. BUT it satisfies for the "partial"main residence exception. This is time based. Hence the time is immaterial. It just needs the factual use.

2/(365.25 x 10) = 0.00054757 or under 1%

 

Nice Paul
so when we hit 60 which is not that far away , we sold off our PPR (have it >10 years) and can each put in $330K into our super

we then move into our IP (have it >10 years) and can repeat the NCC again? or the govt only let us having that benefits only once ?

 

NCC is limited by your TSB - Total Super Balance Cap - so value of TSB as at 30th June in the prior year. Nothing to do with age and no limits on how many times - plus you can bring forward, so if TSB under 1.48M bring forward limit is 330K. If TSB is over 1.7M then no NCC allowed. In between 1.48 and 1.7 there is a sliding scale.
Downsizing is currently 300K once per person over 60 after owning property for 10 years. -> no check on any super balance so no limitations.
So my thinking is to maximize the NCC bring forwards (and any CC) before we get over the 1.48M TSB and then top up with Downsizer contribution once over 60.

 

You might be mixing up the NCC $330K (with bring forward of 110K * 3) with the Downsizer 300K - two very different ways of contributing to superannuation with different rules.

 

thanks RENI99
So the Downsizer 300K and NCC 330K are both after taxed contribution to super so no super tax either coming in or coming out sweet

 

Interesting that ScoMo has announced that the age requirement would be dropped to 55 as part of election promises and I believe Labour have said they would also support this change. Housing supply boost with greater financial choice for empty nesters and pensioners

Although this benefits us personally I cant see how it would provide a benefit to the issues that australia currently has with first home owners and house pricing.

Sure it would mean that people that want to sell (either downsize or even upsize) could be more encouraged to put their home on the market although I don't think they will because of this change. They still cant access their super until at least 60 so that would deter many from locking away a large sum. And assuming your super balance is below the Transfer Balance Cap (TBC) you can use the NCC Bring forward rule to deposit 330K. And you would not be restricted by the requirement to deposit the funds within 90 days of settlement.

It would suit people that are below to the TBC (or NCC Bring forward limit) and close to aged 60 (or with surplus funds/investments to support them until reaching 60) and if they are making enough $$$ from the sale to deposit both the NCC+Bring forward + the downsize contribution -> so that could be 600K+ potentially *2 for a partner.

If the downsizer contribution puts you over the TBC then you can only do one of the downsize or NCC bring forward.

And I guess if people did not have much super (or 600K+ below the TBC) but have property and were looking for a way to move a large sum into super this would be a good option assuming they have a PPOR (or have had a partially CGT exempt property) that they have owned for 10 years.

 

According to Downsizer contributions for individuals

You need to make the contribution within 90 days of settlement but you only need to be age 60 when making the contribution.

So you could technically sell at 59.5 years old, have a 90 day settlement and then make the contribution once you turn 60.

 

From 1 July 2022 the revised age applies. There is also a potential trap if you contribute to make deductible contributions on 28th June to wash against the profit that it could push the 30 June balance over $500K and later be cancelled and found to be a excess contribution. Nobody knows wthat their actual 30 June balance is until long after that date. That aspect of the rules is a bit unworkable really. I believe that the period of time should be before expiration of a year in the latter of the year when the CGT event arises OR the proceeds are settled to make a suitable contribution. There is no logic to 90 days. Many only find out after 90 days that the benefit WAS available.

You would be suprised how many more will find out after 90days that they missed the benefit. There are loads of misunderstandings about downsizer rules. May think you must have sold your own home, some thing if they upsize its not available. One more fatal one is providing the form to the fund BEFORE OR AT the time of contribution but NOT after !!!!!!. The other benefit is one sells then BOTH spouses may be able to EACH push $300K into super.

TIP - All taxpayers aged 60+ who sell a property that was EVER used as a home should pose the question to their tax adviser as soon as possible after signing a contract

 

my understanding is that it’s likely to be anyone aged 55+ from 1st July 2022.
As per my earlier post today. Yes definitely 60 but both parties supporting the lower age - whether that will be legislated by 1St July this year is the question.

 

There is no parliamnt and the proposed age change was mere election banter. Ignore that. The law is age 60+ from 1 July 2022.

 

Labour have just announced the change to Age 55 in todays budget.
Not sure from when though. I guess 1st July 2023 worse case.

 

The answer is no.
"You have not previously made a downsizer contribution to your super from the sale of another home or from the part sale of your home."

 

"The proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption"
If the CG is fully exempt (PPOR), what's the point in contributing to super?