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Catching Up On Superannuation Contributions

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The government’s new measure to allow those with less than $500,000 in superannuation to “catch up” on missed superannuation contributions is a great opportunity for anyone who takes time out of work or otherwise has “lumpy” income that means they have a varying capacity to make contributions from year to year. Individuals who want to fully take advantage of this strategy by making contributions up to their concessional cap plus additional catch-up amounts may need to consider strategies for how to fund those catch-up contributions.

 

Individuals with a total superannuation balance (TSB) below $500,000 are now able to “carry forward” their unused concessional contributions (CC) cap space to future years in order to catch up on contributions later when they have the capacity to do so. Usually, an individual’s CCs are capped at $25,000 per financial year, and exceeding the cap will generally attract an excess contributions tax penalty. CCs include:

 

-compulsory superannuation guarantee (SG) contributions;

 

-additional salary-sacrifice contributions made by your employer; and

 

-personal contributions you make yourself from your after-tax income for which you claim a deduction. Anyone under the age of 75 is now entitled to claim a deduction for personal contributions.

 

The new “catch-up” scheme allows eligible individuals to carry forward unused CC cap amounts on a rolling basis over five years. This means that if you do not use up all of your cap in one financial year, the unused amount can be carried forward and utilised in a future year for up to five years, allowing you to contribute more than the annual cap without penalty.

 

Unused cap space that has not been used after five years will expire.

The 2018–2019 financial year is the first year in which individuals can accumulate and carry forward unused cap space, which means the 2019–2020 financial year will be the first year in which individuals can start to make additional catch-up contributions. To be eligible to make a catch-up contribution (ie above the usual annual CC cap), the person must have had a TSB below $500,000 just before the start of the financial year in which they wish to make the contribution (ie as at 30 June of the previous financial year).

 

How might this work in practice?

To utilise unused cap space from earlier years, an individual must have the capacity to fund the catch-up contribution. Some ways in which a person with prior unused cap space might be able to contribute more than $25,000 in a financial year include:

 

-Making additional salary-sacrifice contributions, particularly for higher income earners who have not yet accumulated $500,000 in superannuation. Once someone reaches annual earnings of $216,120 per annum (which yields around $20,531 p.a. in compulsory SG contributions), their employer is not required to make further SG contributions. However, some workers, including many who earn well under $216,000 p.a., choose to salary-sacrifice additional amounts all the way up to their CC cap of $25,000. Using any unused cap space from earlier years may be attractive to those who want to heavily salary-sacrifice beyond the usual cap.

 

-Contributing an inheritance or windfall, or some other source of surplus funds.

 

-Contributing proceeds from the sale of an asset. It is important to remember, however, that selling an asset may have immediate tax consequences, and selling the family home in particular could affect the person’s entitlement to the Age Pension.

 

Anyone considering these strategies will need to ensure the contributions make sense for their particular circumstances from a tax and financial viewpoint. Individuals aged 65 or over will also need to meet the work test in order to make voluntary CCs (subject to an exception for certain eligible recent retirees).

 

 

Start thinking ahead now

If you have fluctuating income and you would like to explore the possibility of utilising unused CC cap space in future years, talk to us today. Catch-up contributions can form part of an overall contributions strategy designed to boost your retirement savings in a tax-effective manner.

Garnishee Orders May Bring Home The Bacon

A garnish is an enhancer, something to dress up a plate – think of a sprig of parsley. A garnishee is something entirely different, although it can enhance an otherwise dire situation for a creditor and bring home the bacon. It’s a third party who is ordered by the court to release money to remedy a personal debt owed to the creditor by the debtor. This could be the debtor’s bank, their employer or their own creditor.

 

Issuing a garnishee order is a cheap and easy way to claw back some of your debt, but there are a few matters to consider first.

 

Bypass your debtor and go straight to the source of their funds

Once the court has given you a judgment against your judgment debtor, and they have failed to satisfy the judgment, you can apply to the court for a garnishee order. This allows you to bypass the recalcitrant debtor and it sets up a relationship in the form of a triangle between you as creditor, the debtor and the third party.

 

This third-party garnishee acts as a kind of proxy for the debtor and the order will require them to pay the debt to you in a lump sum or in instalments.

 

A garnishee order can be directed straight to the debtor’s bank or their employer. In the latter case, you will be able to access the debtor’s pay packet before they do. You do not have to tell the debtor you have applied for a garnishee order and they may only find out when they see their bank statement or pay slip. However, the local and district courts instruct that the amounts claimed in total under the garnishee orders must not reduce the judgment debtor’s net weekly wage or salary received to less than $500.60.

 

This is known as the weekly compensation amount and is adjusted in April and October each year. When issuing a garnishee order, it must include an instruction to the garnishee about the amount that a judgment debtor is entitled to keep.

 

Garnishee orders can also be made against those who owe money to the debtor, for example a real estate agent who is collecting the rent from the debtor’s tenanted property.

 

Benefits galore of a garnishee order

One of the benefits of a garnishee order is that there is no filing fee, although a service fee may be payable. There is also no extensive research on the debtor required before the order is issued, the debtor’s name may be enough. And if the order fails to recover all or some of the money, the order can be reissued on the same garnishee several times.

There is also little the garnishee can do to stop the order unless they apply to the court or they repay the debt.

 

Guidance on garnishing

If you have received a judgment and have an outstanding debt you are trying to recover from your judgment debtor, we can help take the lead on it for you and take you straight to the debtor’s funds.

 

 

Extra 44,000 Taxpayers Hit With Div 293 Super Tax

An extra 44,000 taxpayers have been hit with an additional 15% Division 293 tax on their superannuation contributions for 2017-18. The ATO has issued these Div 293 tax assessments to a further 90,000 taxpayers after an initial run in late 2018. Of these, around 44,000 taxpayers will receive their first Div 293 assessments following the reduction in the income threshold to $250,000 for 2017-18 (previously $300,000). And with Labor proposing to further reduce the income threshold to $200,000, even taxpayers who didn’t receive a Div 293 assessment this year should start planning now.

 

Individuals with income and super contributions above $250,000 are subject to an additional 15% Div 293 tax on their “low tax contributions” (ie concessional contributions). Concessional contributions include all employer contributions, such as the 9.5% super guarantee and salary sacrifice contributions, and personal contributions for which a deduction has been claimed.

 

As a result of this Div 293 tax, the effective contributions tax is doubled from 15% to 30% for certain concessional contributions (up to the concessional cap).

 

 

The maximum Div 293 tax payable is $3,750 ($25,000 x 15%). Despite this extra 15% tax, there is still an effective tax concession of 15% (ie the top marginal rate – excluding the Medicare levy – less 30%) on concessional contributions.

 

An extra 44,000 taxpayers have been hit with the additional 15% Division 293 tax for the first time on their superannuation contributions for 2017-18. This follows the reduction in the Div 293 income threshold to $250,000 for 2017-18 (previously $300,000). The income threshold of $250,000 uses a broad tax definition and also includes the low tax contributions (up to $25,000). This means that the Div 293 tax can be triggered for taxpayers with incomes below $250,000 (although the additional tax only applies to amounts above the threshold).

 

A taxpayer has the option of paying the Div 293 tax liability using their own money, or by electing to release an amount from an existing super balance by completing a Div 293 election form. If a taxpayer makes such an election, the ATO will direct the nominated super fund to release the amount elected to the ATO. Although the election can be made within 60 days using the ATO approved form, a taxpayer still needs to pay the additional tax by the due date to avoid interest charges.

 

Negative gearing and many salary packaging arrangements generally will not assist in bringing a taxpayer under the $250,000 income threshold. However, astute taxpayers should be aware of the following:

 

-A person who expects to exceed the high-income threshold may wish to consider scaling back their super contributions to only the mandatory 9.5% super guarantee contributions (which are still subject to the Div 293 tax).

 

-Reconsider making additional contributions for a financial year if also anticipating a large one-off amount of taxable income during an income year. For example, an employment termination payment or a large net capital gain (eg from the sale of an investment property) will flow through into the taxpayer’s taxable income and may push them above the high-income threshold and trigger the Div 293 tax for that income year.

 

-Taxpayers that only exceed the $250,000 income threshold due to their investment income (especially franked dividends) should consider transferring such investments into another structure, such as a bucket company, rather than in their personal capacity, so that this additional income (grossed up for franking credits) is not counted towards their Div 293 income threshold. Such a structure would have its own additional costs, CGT implications and reduced flexibility but could nevertheless save an impacted taxpayer up to $3,750 per year in Div 293 tax.

 

-Labor, if elected, has proposed to further reduce the Div 293 income threshold to $200,000 and drag more taxpayers into the Div 293 net.

 

Need more guidance?

If you are one of these unlucky taxpayers to be hit with Div 293 tax, talk to us today about your options to pay the tax personally or withdraw an amount from your super fund. Likewise, we can discuss your income tax and superannuation situation to investigate strategies to stay under the Div 293 threshold or minimise the amount of tax payable.

FBT On Work Christmas Parties and Gifts

With Christmas fast approaching, the ATO has reminded employers and business owners about the potential FBT implications of providing office Christmas parties and gifts to employees. Whether or not the party or the gift attracts FBT depends on a number of factors including how much it cost, where the party is held, or the type of gift that is given. One of the essential things to remember is to keep good records so if you’re unsure about your FBT implications down the track an experience professional can help.

 

Ahead of the holiday season, the ATO has reminded employers about the potential FBT implications of providing Christmas parties and gifts. When planning Christmas parties, the ATO says employers need to check how much it will cost and where and when it is held. This is because a party held on business premises on a normal work day is treated differently to an event outside of work. The ATO said it is also necessary to keep good records and consider who is invited – is it just for employees, or are partners, clients or suppliers also invited?

 

The ATO noted that Christmas presents or gifts may also attract FBT, so employers should consider:

-the value of the gift;
-the type of gift (noting that gifts of wine or hampers are treated differently to gifts like tickets to a movie or sporting event); and
-who the gift is given to.

 

There are different rules depending on whether gifts are given to employees and clients or suppliers, the ATO said.

 

FBT exempt benefits – minor benefits

Minor fringe benefits with a taxable value (if subject to FBT) of less than $300 are (with certain exceptions) exempt benefits under s 58P of the Fringe Benefits Tax Assessment Act 1986. According to Ruling TR 2007/12, exempt minor benefits (which are valued at less than $300) are likely to include Christmas gifts and a Christmas party.

 

The ATO’s FBT guide for employers says a single gift at Christmas time to each employee of, say, a bottle of whisky or perfume would be an exempt benefit, where the value was less than the $300 threshold for exempt minor benefits. However, if the gift is provided at a Christmas party, the ATO says the gift needs to be considered separately to the Christmas party when considering the minor benefits threshold.

 

Need help with your FBT obligations?

The silly season is fast approaching, if you’re planning the office Christmas party of getting gifts for your employees, your business may be subject to FBT. If you’re unsure of how to manage your FBT affairs, get in touch with us today, we have the expertise to help.

Government Debts And Your Travel Plans

The government has started a crackdown on individuals who owe welfare debts by preventing them from leaving the country, even for a holiday, until either the debts have been paid or they enter into a repayment plan. Some of the welfare debts are as small as $10,000, so is this the start of the government using Departure Prohibition Orders (DPOs) more frequently as a tool to pressure individuals from paying their government debts, including money owed to the Tax Office?

 

Departure Prohibition Orders (DPOs) have long been used as a tool by the government as a way to stop those who owe debts from leaving the country before they pay their debts, even if they are just going on a holiday. It has been used successfully for more than a decade in the enforcement of child support payments, and by the ATO as well.

 

Now the government has started applying DPOs to prevent former welfare recipients from leaving the country over debts as small as $10,000.

 

So far, more than 20 DPOs have been issued and the Department of Human Services is looking to increase the use of DPOs to help recover more than $800m owed by more than 150,000 who are no longer in the welfare system. Those that are currently receiving a welfare benefit will not be caught under this measure and those that are experiencing genuine hardship can have their repayments deferred.

 

The Department has made it clear that they will only issue DPOs in cases where the individual has consistently refused to repay their debts and have ignored multiple warnings. In addition, those who are subject to a DPO will also continue to have interest charged on their debt until they take action to repay the money they owe. The real question is whether this increased used of DPOs as a way to exert pressure on individuals to pay their debts will spread to other areas such as ATO debts.

 

The ATO guidelines on DPO indicate that the Commissioner can issue a DPO where an individual has a tax liability and the Commissioner believes on reasonable grounds that it is desirable to issue a DPO to ensure that the individual does not depart Australia without wholly discharging the tax liability or making arrangements for the tax liability to be discharged. This is regardless of whether the individual intends to return. In addition, DPOs can apply to both Australian citizens and foreign nationals who are liable to pay Australian tax.

 

In deciding whether to issue a DPO, the ATO will take into account all relevant facts and circumstances, including whether: the debt can be recovered; disposal of assets had occurred; information to suggest concealment of assets exists (eg AUSTRAC reports); the individual has sufficient assets overseas to maintain a comfortable lifestyle; transfer of any assets overseas; the actual need for travel; recovery proceedings or audit activity in progress; and involvement in criminal activity.

 

It should be noted that the issuing of DPOs will only be pursued after initial collection activity which involves issuing a notice calling for payment and then having the debt referred for collection activity. While the ATO acknowledges that a DPO imposes significant restrictions on normal rights of individuals and deprives them of their liberty, it needs to be balanced with the protection of revenue.

 

Therefore, the Commissioner already has a wide remit to issue DPOs in circumstances he considers to be appropriate. Data from past years indicate that the majority of DPOs were issued in relation to tax fraud/evasion on an international scale, related to wealthy or high-net-worth individuals or their related entities. Even then, the fact that the ATO has issued relatively few DPOs in the past few years may be an indication that it will not be applying this method to pressure individuals with smaller tax debts.

 

Need help with a tax debt?

Even though the ATO is unlikely to stop you from going on holidays because you have a tax debt, it may still be prudent to take care of any debt you may have outstanding with the ATO, even if it’s a small one. We can save you money in interest charges and potentially get penalties remitted. Contact us today.

Airbnb And Home Sharing: Taxing Implications

Do you rent out a part of your home, or a holiday home, on Airbnb, Stayz or another sharing site? Perhaps you see this as a way of making a little extra income to help the household budget or to save for that holiday. But what you may not be aware of are the long-term tax implications of such a move, which may lead to a case of short-term gain causing long-term pain.

 

These days it seems more and more people are diving head first into the sharing economy by driving Ubers or listing their properties on Airbnb and other home sharing sites. Renting out a part of your home or your whole home while you’re on holidays seems like a great way to make some extra money now, but if you go down this route what about the tax implications for you now and in the future?

 

Reporting income

Unless a home was rented out to family members or under domestic arrangements that are not commercial, all income received needs to be included in your tax return. This is regardless of whether it was a long-term rental or a short-term rental.

 

Claiming deductions

Where you are only renting out a part of your home (ie a single room), say on Airbnb or another similar platform, you can only claim expenses related to renting out that part of the home. According to the ATO, a floor area method based on the area solely occupied by the renter as well as a reasonable amount based on their access to common areas should be used to apportion the expenses claimed.

In addition, where you use the room that is rented out in any other capacity such as storage, home office, or spare bedroom, then you cannot claim deductions for any expenses for the period the room is unlet. For example, heating and electricity costs received every quarter need to be apportioned based on the number of days the room was occupied and on the floor area basis to obtain the final deductions figure.

 

Selling your home eventually

As the ATO’s Deputy Commissioner for Small Business, Deborah Jenkins, has said:

 

“Just like running a business from home, once income is earned from a primary place of residence there are Capital Gains Tax (CGT) implications. It is possible that if a property significantly increases in value, the amount of CGT owed may even be higher than the amount of income received.”

 

When it comes time to sell your home and you’ve previously rented it out, you won’t be entitled to claim the full exemption for capital gains tax. This is the case even if you’ve lived in the home as your main residence and only rented out one room for a short period of time. The calculation for the portion of capital gain that will not be exempt is complex and a qualified and registered tax adviser should be consulted.

 

Want to find out more?

Renting out your home on sharing platforms may have some tax pitfalls, speak to us if you are thinking of or are renting out part of your home or your entire home. We can help you understand the intricacies and tax implications further to avoid a visit from the tax man.

Are You Caught Out By The Age Pension Assets Test?

The stricter Age Pension assets test came into force more than a year ago, but it is probably only now that the impact of this change is being felt, especially by middle-income wage earners. This could put you in a situation where if your assets are at a certain level, you won’t qualify for the Age Pension. It is thought that this could affect up to 300,000 retirees. Here we look at current thresholds to keep in mind.

 

The Self-Managed Superannuation Fund Association (SMSF) has expressed concern that the changes to the Age Pension asset test rules (since 1 January 2017) may be actively discouraging middle-income earners from saving to be self-sufficient in retirement. Could this apply to you? It is worth looking at your situation closely to see if the changes do affect you.

 

If you earn what is considered to be an “average” income you will most likely be caught by the asset test. But what is a middle-income? Individuals with an average taxable income of $46,000 in 2017/2018 fall within this category and could also be hit with an increase in tax rate of 3.2 per cent by 2021/2022.

 

Currently, the Age Pension assets free area for a single homeowner is $253,750 and $380,500 for a homeowner couple. For non-homeowners it is $456,750 (single) and $583,500 (couple). The Age Pension begins to phase out at $3 per fortnight for each $1,000 of assets over the relevant assets test threshold.

 

The table below outlines the current and proposed thresholds for the full Age Pension:

If you are:                                                      Homeowners                    Non-homeowners
Single                                                            $253,750                                $456,750
in a couple, combined                                    $380,500                               $583,500
illness separated couple, combined             $380,500                                $583,500
one partner eligible, combined                     $380,500                                $583,500

Source: Australia Department of Human Services https://www.humanservices.gov.au/individuals/enablers/assets

 

The table below outlines the assets test thresholds for the part Age Pension:

If you are:                                                     Homeowners                   Non-homeowners
Single                                                           $552,000                                 $755,000
in a couple, combined                                 $830,000                                 $1,033,000
illness separated couple, combined           $977,000                                  $1,180,000
one partner eligible, combined                   $830,000                                 $1,033,000
Source: Australia Department of Human Services https://www.humanservices.gov.au/individuals/enablers/assets

 

Taper rate

If you are a home-owning couple, for example, who have superannuation assets of between $380,500 and $830,000, the taper rate creates a “black hole” (equivalent to 7.8% a year), reducing your pension entitlement at a rate exceeding the income you can earn from your super balance above the asset free area. This may provide an incentive to shift investments to excluded assets such as the family home.

 

Plan your future

The SMSF Association believes that a more appropriate mechanism to integrate superannuation and Age Pension means testing would be a move to a single means test that applies a deeming rate to financial and non-financial assets, getting rid of the assets test altogether.

Melbourne-based SaveOur Super group has engaged in a debate with Assistant Treasurer, Michael Sukkar, on this issue. Sukkar has said that the Age Pension is “not supposed to support retirees with a higher level of assets to maintain their capital base”. Instead, the steeper taper rate is meant to “encourage people to draw down their savings more rapidly”. While this debate may not lead the current Government to change super and pension rules, it is good time to contact us. We can help you to assess your assets and plan well for your retirement.

Payroll Reporting: A Touchy Subject

If you are an employer the way you report payments, such as salaries and wages, pay as you go (PAYG) withholding and superannuation is changing from next year. The ATO will need you to report these payments directly from your payroll solution in real-time, at the same time as you pay your employees. This is known as single touch payroll (STP) and is intended to simplify business reporting obligations. It comes into effect in 2018 or 2019, depending on the size of your business. Are you ready for this change and how will it affect you? We can help you to prepare for the move to STP.

 

The introduction of single touch payroll (STP) is in line with the Government’s “digitisation agenda”, to make reporting more streamlined, but many small businesses will feel an extra compliance burden. Those who work in remote areas of Australia may be at a disadvantage as Single Touch Payroll reporting will require a strong internet connection.

 

In a straw poll conducted by Accountants Daily (between 5 September and 14 October), almost 90 per cent of accountants and advisers said that their clients were not ready for the shift to single touch payroll.

 

The Institute of Public Accountants (IPA) chief executive officer, Andrew Conway has said: “While initially STP delivers little benefit to small business, we acknowledge that other benefits exist such as transparency over superannuation guarantee payments.”

 

For small and micro businesses – those who employ less than five people – implementing STP by the deadline will take considerable incentive and support. The IPA supports the notion of a phased and targeted incentive approach as proposed by the Government, along with the consideration of a partial offset of costs. However, Mr Conway said the IPA would “like much more detail” to ensure small businesses are not impacted adversely by the implementation of STP. We will keep you posted on updates to this area.

 

How will this change affect you as an employer?

The change to STP means that employers won’t need to complete payment summaries at the end of the year as these will have been reported in real time throughout the year. If you have a payroll solution (software that you use in order to pay employees), you will need to update this or make sure it is updated by your service provider. If you do not have a payroll solution, you can speak to us about how to find the best solution for your business. We may be able to report using STP on your behalf. The first 12 months of STP will be considered to be a transition period, during which time you could be exempt from an administrative penalty for failing to report on time. There are other exemptions, including if you operate in an area with an unreliable internet connection or you are classed as a substantial employer for only a short period during the year (for example, if your employees are seasonal).

 

How about if you run a small business?

Mr Conway said the IPA’s concern is for 70,000 small businesses that will struggle to implement STP without help and support. If you do not use digital software for your payroll you may also need our help to adopt new technology.

 

What does it mean for employees?

With the move to STP, employees will be able to log on and make sure they are being paid the correct amount for their superannuation contributions so “this level of transparency is most welcome”.

 

What is the timeframe?

Single touch payroll will be compulsory for employers (including those in a wholly-owned group) with more than 20 employees from 1 July 2018. If your business has less than 19 employees, you have a bit longer, but you will need to get on board by 1 July 2019, subject to legislation. If you are unsure about whether you are a “substantial employer”, the advice is to do a headcount of all of your employees who are on your payroll on 1 April 2018; a total headcount includes all full-time, part-time, casual employees, those based overseas, absent employees and seasonal employees, not just your full-time equivalent (FTEs).

 

Want to find out more?

You may not feel ready to meet your compliance needs in relation to STP. You could qualify for a deferral (due to circumstances beyond your control) and you will need to make a request for this. Contact us to discuss the changes to payroll and what you need to do to make the transition seamless.

Super Guaranteed

Paying the right amount of super to your employees can at times be a complex exercise, with the threshold changes in the recent years and the contribution base which changes every year according to indexation factors. With the rise of the gig economy there’s also a grey area as to whether a certain person working for you is actually an employee or a genuine contractor. Find out what your super obligations are this year.

 

Are you paying the right amount of super for your employees? It’s that time of the year again, where the Australian Bureau of Statistics (ABS) release the indexation factors that are critical in determining various superannuation thresholds. While the super guarantee is still frozen at 9.5%, the maximum contribution base will increase to $54,030 per quarter (or $216,120) for 2018-19. Employers are not required to provide the minimum super guarantee for the part of employees’ wages above the maximum contribution base.

 

Besides the part employees’ wages above $216,120, you as an employer, are required to make minimum contributions of 9.5% of an employee’s ordinary time earnings by quarterly due dates to their nominated superannuation funds if you pay the employee $450 or more (before tax) in a calendar month. This is irrespective of whether an employee is full-time, part-time, casual, a family member, company directors, those who receive a super pension or annuity while still working, or temporary residents.

 

You should note that the ATO considers certain contractors that are paid mainly for their labour to be employees for super guarantee purposes. This is the case even if the contractor quotes an ABN. According to the ATO, you as an employer must make super guarantee contributions of 9.5% on what you pay your contractors if they are paid:

 

-under a verbal or written contract that is wholly or principally for their labour;
-for their personal labour and skills which may include physical labour, mental effort or artistic effort; or
-to perform the contract work personally.

 

If you’re not paying the right amount of super for your employees and some contractors, beware, the ATO uses sophisticated data analytics to identify employers at high risk of non-compliance. 

 

It also takes a differentiated approach to compliance and penalties depending on the compliance history of the employer and how actively they engage to meet their superannuation obligations. Therefore, it pays to be in the good books of the ATO as they may take a more accommodating approach should your business have any discrepancies in super guarantee payment to your employees.

 

However, employers who are unwilling to meet their super guarantee obligations should expect the ATO to take firm compliance action including the imposition of penalties such as the super guarantee charge, a Part 7 penalty (up to 200%) for late lodgement of the super guarantee statement or failing to provide information when requested, and an administrative penalty (up to 75%) may also apply for an employer who makes a false and misleading statement.

 

Need help?

If you’re having issues with working out the right super amount to pay to your employees or if you would like to determine whether that person working for you is considered to be an employee or a genuine contractor, we can help.

Downsize to Boost Your Super

From 1 July 2018, people aged 65 or over will be able to make additional non-concessional contributions of up to $300,000 from downsizing their home subject to certain conditions. This is in addition to the concessional and non-concessional contribution caps. However, this measure may have unintended consequences if you plan on applying for the Age Pension, so wholistic retirement planning is needed to take advantage of the measure while minimising the downsides.

 

Now all the kids have all flown the coop and you’re left with an empty nest, it might be a good time to consider downsizing to pursue that ultimate retirement dream; fishing beside a river, surfing every morning, or getting up to that fresh country air. Your dream could be one step closer with the measure to allow people to make additional super contributions from the proceeds to selling their home.

 

From 1 July 2018, people aged 65 or over will make able to make additional non-concessional contributions of up to $300,000 from downsizing their home subject to certain conditions:

-the principle place of residence must have been held for a minimum of 10 years and located in Australia;
-contribution must be an amount equal to all or part of the capital proceeds of sale of an interest in a qualifying dwelling in Australia;
-any capital gain or loss from the disposal of the dwelling must have qualified (or would have qualified) for the main residence CGT exemption in whole or part;
-contribution must be made within 90 days of disposing the dwelling (a longer time period may be allowed by the Commissioner);
-a choice is made to treat the contribution as a downsizer contribution and the complying superannuation fund is notified in the approved form of this choice either before or at the time the contribution is made; and
-the contributing individual has not previously made downsizer contributions or has had one made on their behalf, in relation to an earlier disposal.

 

The advantage with downsizer contributions is that the contribution is neither a concessional nor a non-concessional contribution, so if you have already reached your concessional or non-concessional contributions caps for the year, you are still able to make a contribution through the downsizer scheme, provided you meet all the conditions.

 

If you and your spouse jointly own a home, and decide to downsize, you can both benefit from this measure. For downsizing the same home, you and your spouse could potentially contribute a maximum of $600,000 into your individual super funds or SMSF. The other advantage with this measure is that the restrictions on non-concessional contributions for people with total superannuation balances above $1.6 million will not apply. Therefore, the total superannuation balance of the individual will also not affect their eligibility to make a downsizer contribution. However, any downsizer contributions will still be subject to the $1.6 million pension transfer balance cap.

 

Does this measure seem too good to be true? Well, there is also the Age Pension side you should be aware of. Currently, the family home is totally exempt from the Age Pension assets test, however, downsizer contribution may count towards the Age Pension asset test and any changes in your superannuation balance as a result of using this measure may also count towards the Age Pension Asset test.

 

Want the whole picture?
Need advice on how you could potentially take advantage of this measure and need to know what the downsides are? We can provide you wholistic advice for your planned retirement to make sure you realise your dreams.

 

 

 

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