By making downsizer contributions, it’s important to be aware of the impact this may have on your Centrelink entitlements such as the age pension or for self-funded retirees, the benefits under the Commonwealth Seniors Health Card (CSHC).
You should also be aware that there is no obligation under the legislation to purchase a new residence with the sale proceeds from the family home.
By selling the main residence, the value of the property which was previously exempt from being means tested will now be subject to the assets/income test.
Glenn and Michelle both aged 70, sell their home for $1,000,000 and purchase a smaller dwelling for $500,000. Assuming they met the requirements for a downsizer contribution, they could put $500,000 between them into their super.
If they were receiving a full or part age pension, the $500,000 in super will now be assessed under the assets & income test. As a result of this assessment, their age pension entitlements would be reduced or possibly even cancelled.
Careful consideration is required when releasing equity from exempt assets (ie your family home) to an assessable asset such as super, shares or bank account.
The same can be said for self-funded retirees (ie with no age pension) who enjoy the benefits of the Commonwealth Seniors Health Card (CSHC).
The annual income limits for the CSHC are $54,929 for singles and $87,884 for couples. Released equity from the family home and subsequent earnings (including deeming) from these proceeds may exceed these limits resulting in a loss of the CSHC.
Special deeming rules apply to account-based income streams established from 1 Jan 2015. Aggregating a downsizer contribution with an existing income stream may also result in the loss of the CSHC.
Seek professional advice prior to undertaking downsizer contributions in order to be aware of the trade-offs.
If you have any questions regarding the information in this article or making downsizer contributions to your super, please contact your local RSM adviser.
This article has been prepared by RSM Financial Services Australia Pty Ltd ABN 22 009 176 354, AFS Licence No. 238282. This article does not take into account your individual objectives, financial situation or needs. You should assess whether the information is appropriate for you and speak to a financial adviser before making a decision in relation to superannuation contributions.