The new financial year has come and there are updated superannuation rules that need to be worked on. They can help investors, both young and old, who have a impending capital gains tax bill to shed.
The super downsizer lets anyone over the age of 65 to drop up to $300,000 into super. This is a non-concessional contribution that means no contributions tax is taken out when it is paid in.
You need to have resided in your primary abode for at least 10 years, entered the sale contract after July 1, 2018, and claim the money into super within 90 days of settlement.
Where this might be valuable is if you plan to economise but don’t have the resources to erect a new home or capture the bargain that you just found.
Rather than taking a massive hit by taking out a bridging loan, you could take money from super to do the change-over while putting up your existing home for sale. Then when you are primed and ready, sell your home and re-inject the incomes back into your super to refill the nest egg.
However, select wisely
Deciding the right time and how to downsize is a significant decision to make. When you’re in your 60s, the “4×2 with BG pool” might be described as “big empty home with a pool that costs a fortune to maintain.”
Like many, many others, you should take a look around and chances are you’ll soon discover there’s a world of choices out there, and a poor decision could be costly for you.
Seniors basically have three options when it talking about downsizing. The first would be to relocate to a smaller home or a strata-titled residence such as a unit or villa.
In this case, you have an interest in the property, with your name recognised as the proprietor with Landgate. While you carry the costs of maintenance, you enjoy the benefits of being the property owner. If it appreciates in value, you or your loved ones would benefit from the profits.
Neither of these is accessible if you pick options two or three and utilise the proceeds of your home to enter a retirement or lifestyle village.
Village promoters are specialists at endorsing the positives, so look at these issues to think about. In this arrangement, you purchase a right to reside in the village and to use the facilities on offer.
But to be clear: this is not a real estate transaction. Your specific entitlements and obligations are specified within a multi-page contract. In reality, most of the contract seems to be focused on protecting the rights of the village operators.
There are a few other new year super changes to consider:
First home super saver scheme
The new first home super saver scheme is important for first homebuyers. It lets you save a deposit quickly and economically earning a rate of interest that would thump any bank and is taxed at a huge discount.
Voluntary contributions of up to $15,000 a year, capped at $30,000 per person, can go into super and then be taken out to be used towards a deposit for your first home.
Qualified contributions date back to July 1, 2017, but July 1 this year is the first date you can take away the money. You can’t access the boss’s compulsory super, only the extra money you pay in.
The money can be added through salary sacrifice which means that it comes out before tax is calculated. If you can convince your parents to give you the money, you can simply pay the money in without claiming a deduction or, claim it as a personal tax deduction yourself.
That way, you might be up for a tax refund at the end of the year. If salary sacrificed or claimed as a deduction, you’ll often lose 15% contributions tax but that’s still a whole lot better than the personal income tax you might have paid. If no deduction is claimed, no contributions tax comes out.
But there’s a catch. If your funds do better than the statutory rate, it would help augment your retirement nest egg because the surplus stays in your super. If your fund performs worse, you run the risk of biting into your remaining super capital and eroding your future nest egg.
Roll over unused concessional contribution caps
July 1 is also the beginning of an ability to roll over unused concessional contribution caps.
Let’s say your combined compulsory employer super and salary sacrifice amount to $20,000 for this fiscal year, $5,000 short of the $25,000 cap. If not put to use, you can now carry that $5000 into the 2019-2020 tax year and could make concessional contributions totalling $30,000 next year.
The regulations lets you aggregate up to five years worth of concessional contributions, which is very useful if you have a fairly decent capital gain.