The Downsizer Contribution: A tax-free incentive to fund a comfortable retirement
If you’re picturing an ideal retirement but uncertain if your savings are enough to carry you through, the Australian Government has a new incentive aimed specifically at downsizers aged over 65.
From 1 July 2018, eligible seniors can take advantage of the Downsizer Contribution which encourages home owners to sell their empty nester asset and use the proceeds to top up their superannuation with a one-off contribution.
Seniors lifestyle and finance expert and author, Rachel Lane, spends time travelling across the country educating seniors on the variety of living options available for downsizers.
With the commencement of the new government incentive, Rachel advises seniors to do their research and seek advice about the personal implications before rushing to put the ‘For Sale’ sign up on their home.
“While the new Downsizer Contribution is a tax-free solution to funding a more secure retirement, there are two major factors for seniors to consider.
“Firstly, seniors need to do their research on what suitable accommodation choices are available for them and secondly, is investing in superannuation the best solution as it can affect your pension entitlements.
“Unlike previous proposed downsizing incentives this new one has no exemptions applied to the asset or income test which means making extra contributions to your super can affect your pension.
“As a general rule the income test bites you first but the asset test bites you harder, if the money from the sale of your house has pushed you over the asset threshold ($547,000 for singles and $823,000 for couples) by $100,000 then your pension would reduce by $7,800 per year so obviously the superannuation would need to earn 7.8% after fees and tax just to replace the lost pension,” Rachel advises.
How can I make the Downsizer Contribution work for me?
The Downsizer Contribution enables a self-funded retiree to sell the family home and structure their financial affairs to maximise superannuation income.
For seniors looking to downsize into a lifestyle community the Downsizer Contribution also means they can take up the incentive while potentially gaining access to more government entitlements.
Ingenia Chief Operating Officer, Nikki Fisher said the incentive will help seniors get out of their asset rich, income poor situation, which many older Australians find themselves in now.
“By making a tax-free super contribution senior Australians have a real opportunity to fund a more secure retirement, free up the equity from their homes and boost their super balance at the same time, by up to $300,000 for an individual or $600,000 for a couple.
“Considering the average super balances at retirement are $270,710 for men and $157,050 for women, adding an extra $300,000 into a super fund would more than double (for men) and almost triple (for women) those super balances.
As a leading owner, operator and developer of affordable seniors housing communities in Australia, Ingenia’s lifestyle portfolio is certainly responding to the needs of downsizers who are looking to purchase a more suitable place to retire in.
“Ingenia Lifestyle’s innovative land lease ownership model delivers a very viable option for those seniors looking to downsize and access the incentive with a low entry cost to purchase a new home, the elimination of stamp duty fees, no exit fees and residents keep 100% capital gains made on the home.
“Low ongoing costs mean residents can make their super last longer, additionally, purchasing a brand new home in a land lease community like Ingenia Lifestyle may enable eligibility for rent assistance giving seniors access to more government funding,” Nikki said.
Rachel Lane Case Study: Sue and Garry from Greenacre
Sue and Garry decide to sell their three bedroom home in Sydney’s inner western suburb of Greenacre and achieve $1 million on the sale.
They make a sea change and purchase a brand new home in a land lease community such as Ingenia Lifestyle Lake Conjola for $330,000. They both contribute to their super $600,000 of tax free dollars.
After downsizing Sue and Garry have $70,000 in cash to purchase a caravan or go on a holiday knowing they have secured their future, their home is being looked after while on the road and they come back to a lifestyle community with social and wellbeing programs. They are also an extra $10,734 better off each year in income.^
|Stay in place||Downsize and make a tax-free super contribution|
|Pension||$35,568 pa||$13,000 pa|
|Rent Assistance||Nil||$3,302 pa|
|Superannuation Contribution earnings||Nil||$30,000 pa*|
|Income per annum||$35,568 pa||$46,302 pa
Plus a new home and $70,000 in cash to fund their new lifestyle
*Assuming their new super contribution of $600K is earning 5%pa
^We recommend you seek professional advice from a financial planner who specialise in seniors finance. Our figures have been supplied by Rachel Lane from Village Gurus.
Am I eligible for the Downsizer Contribution?
To be eligible, downsizers must answer yes to all of the following:
- You are 65 years old or over 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 your primary place of residence, 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 (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a CGT rather than a pre-CGT (acquired before 20 September 1985) asset
- 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 would like to know more about the Downsizer Contribution you can contact our Project Sales Team on 1800 135 010 or contact us online here.