Budget 2017: home switch for seniors ‘welcome’

Under the new rules, the over-65s can put up to $300,000 from the sale of a family home into super.

A much-anticipated plan to assist seniors downsizing from larger family homes has been welcomed as a positive reform in the superannuation system. Though the budget measure will be strictly limited to the over-65s, advisers suggest if could become popular.

In practice the measure means there will be a variation to what are called non-concessional superannuation (after tax) limits.

Scott Morrison announced a sharp cutback in the amount that could be placed into super on this basis in the 2016 budget.

One consequence of the reduced concession limits was that it became very difficult to contribute if you were over 65 because the dollar amount allowed was cut from $180,000 to $100,000 per annum, the contributor had to be over 65 but under 75 and they had to work at least 40 hours a month.

As residential property prices continued to rise over the last year the superannuation system ­actively discouraged older people selling their family homes due to exceptional restrictions on placing funds into the tax-protected environment of super.

Under the new rules the over 65s can put up to $300,000 from the sale of a family home into super. Importantly, the new arrangement offers an exemption from the highly unpopular work tests and it is not age restricted beyond 65 unlike the previous rules.

A key condition of the new ruling is that pensions must have lived in their home for more than a decade, but planners say this is very often the case.

According to Andrew Hewison of Hewison Private Wealth: “Often the family home is the largest financial asset for retirees at retirement.

“Because it carries life memories people are reluctant to sell their home to fund retirement … this will provide an incentive.”

An example of the new rules in action could be where a homeowner who is 74 sells a house for $800,000. Under the government’s original plan the retiree could only contribute $100,000 per annum to super from the home. In this circumstance the individual would have been able to only contribute $100,000 one time only into super.

Moreover, they would have to have been working at least 40 hours a month. Under the “downsizing variation” the individual in the same circumstance can sell the home and place $300,000 from the sale into super whether they are working or not. The residual money, in this case $500,000 could be left to finance new less ­expensive accommodation such as an apartment purchase.

Treasury officials have been keen to point out the measure creates a variation in the contribution cap rules but not a variation in the all-important “super balance cap” which also kicks in on July 1 and restricts the amount funding a tax free retirement to $1.6m.

Amounts of above the “cap” can stay in the superannuation system, but will fall into the so-called accumulation category where tax on earnings is levied at 15 per cent. In common with all of the key superannuation measures the “downsizing” measure is ­applied on an individual basis.