New downsizer contributions are set to be as beneficial to people over 65 as the transition-to-retirement income scheme (TRIS) was to pre-retirees, IPAC private client adviser Peter Crump says.
The downsizer rules, set to come into effect on July 1 this year, gives a person aged between 65 and 75 the ability to contribute up to $300,000 into their superannuation as a non-concessional contribution, from the proceeds of selling their own home.
An important omission from the legislation is the requirement that the person actually downsize. This only conditions are that the home must be owned for at least 10 years, and the downsizer contribution must be made within 90 days after the settlement of your home sale. As stated in Treasury’s fact sheet, “You will be able to make a contribution once you sell an eligible home. You do not have to make any subsequent home purchase, and you can move into any living situation suitable for you.”
Crump, who is a former chairman of the SMSF Association, says that the rule is a boon for post-retirees in the same way that transition-to-retirement income streams were for pre-retirees.
“The opportunity is likely to have the same degree of interest as the TRIS strategies that were developed,” he explains. “Starting a TRIS made superannuation earnings tax-free earlier than they otherwise would be, whereas this makes it possible for people to put more money into super.
“It reads as a home downsizer contribution, but you don’t need to reduce the value of your home to put in $300,000,” he continues. “There’s nothing to say that you can’t use the full proceeds to buy another house, and make the contribution using separate money that happens to be floating around at the same time. It might only go into accumulation if they’re over $1.6 million but that’s still a much better tax rate.”
For advisers, helping clients take advantage of the downsizer rule will be a huge value-add, Crump says.
“We’re looking at it as the new transition to retirement,” he says. “Well-informed members and the well advised will be the ones who do really well out of this.”
Peter Crump will be speaking at the 2018 SMSF National Conference today – Wednesday, February 14 – in a session called “Contribution opportunities – nothing has changed, or has it?”
